Sprint Nextel released dismal results, and now it's time to analyze what went wrong. The carrier announced last week that it added just 708,000 net subscribers in the quarter, the bulk of which were prepaid customers from Boost Mobile. Just 210,000 were postpaid subscribers. That compares with 1.8 million postpaid customers from Verizon Wireless and 1.5 million from Cingular Wireless. Sprint Nextel's net income took a substantial hit, plummeting from $600 million in second-quarter 2005 to $370 million this year. And its churn rate continues to hover at 2.1 percent when competitors are coming in at 1.1 percent.
There are some fundamental problems for Sprint. Its rate plans are confusing, it doesn't have the world's most popular phone, the Motorola RAZR, in the handset mix, and it basically hasn't given a strong reason for customers to come to the table. Touting evening calling that starts at 7 p.m. doesn't cut it when competitors have marketing messages that revolve around network quality and the Motorola RAZR.
And what has happened to the Nextel business? Before Sprint came along, Nextel was the envy of every operator in the industry because of its industry-leading ARPU and incredibly low churn. Now it's like the business and any semblance of the high-quality brand have fallen into a black hole. During Sprint's conference call with analysts, COO Len Lauer said that Sprint had more than 16 million post-paid iDEN subscribers, which would imply no growth in the customer base since it was acquired in 2005, says Walter Piecyk, analyst with Pali Research. Lauer believes the lack of growth in the iDEN customer base is a result of increased marketing to the consumer. Indeed, Boost Mobile, with its unstable customers and low ARPU, is the work horse for the company.
Sprint is looking ahead to get itself out of this sinkhole. Management thinks Sprint's quadruple-play strategy with its cable partners, its rapid rollout of high-speed data services and imminent plans for fixed-mobile convergence will begin boosting its financials. But how about investing in and focusing on the fundamentals: a better network and improving customer service?
I would also love to know who made the decision to pass on the RAZR in the first place. The company is now scrambling to get the phone into its channels, but it looks like the it won't be available for another six months. - Lynnette