Sprint plots strategy for Virgin's relaunch as Boost returns to growth

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Sprint is still hoping to regain ground in a competitive prepaid market with the relaunch of its Virgin Mobile brand at some point this year. But the carrier has yet to settle on a strategy.

“We’ve put most of our attention in the postpaid handset business, which is where 80% of the profit in this industry comes from,” CEO Marcelo Claure said Thursday at an investor conference. “Now that that business is stable, we’re putting a lot of energy into Boost and Virgin,” the company’s two prepaid brands.

Prepaid customers have long been almost an afterthought for most major U.S. network operators, who have opted instead to focus on postpaid users who often generate higher ARPU and lower churn. But as the growth of smartphone sales slows—and as the gap between prepaid and postpaid ARPU narrows—carriers are increasingly focused on the prepaid segment.

And while Sprint’s postpaid business has gained significantly over the last year, it has bled prepaid users as T-Mobile’s MetroPCS and AT&T’s Cricket have thrived. Sprint saw a net loss of 427,000 prepaid users in the third quarter last year, and a relaunch of its Virgin brand that had been scheduled for 2016 was quietly pushed back to sometime this year.

RELATED: Sprint Prepaid loses shelf space in advance of Virgin relaunch

Boost finally returned to growth late last year “for the first time in many, many quarters,” Claure said, and Sprint will increasingly market that brand as an alternative to bigger prepaid service providers. Meanwhile, Sprint is tinkering with different strategies as it plots its relaunch of Virgin.

“I envision Virgin as being our disruptive brand,” Claure continued. “You’re going to see us test different models. One model we’re testing that we like is a potential—rather than subsidizing handsets, actually providing free airtime with no subsidy on the handset. So you’re going to see Virgin be our disrupter brand. And you’re going to see Boost be a very strong brand that can give good competition to both Cricket and Metro.”

The ARPU gap between prepaid and postpaid users has narrowed significantly in recent years, prompting carriers to target that market—particularly users with a single line—more aggressively. Even Verizon, which not long ago relegated its prepaid business to the MVNO TracFone, has refocused on prepaid, updating its pricing structure late last year to better compete in that market.

Sprint faces some major challenges as it looks to regain its lost footing in prepaid, however. While the ARPU gap is shrinking compared to postpaid, increased competition has narrowed profit margins. So Sprint, which continues to face serious financial hurdles, may have to come up with an innovative strategy to win back prepaid users in a way that boosts the bottom line.