FEATURE: Sprint Nextel: The Problems Continue

Sprint Nextel: The Problems Continue

By John Byrne and Ken Hyers, Technology Business Research

Last week Sprint pre-announced poor fourth-quarter results that included a net loss of 306,000 postpaid subscribers and plans to lay off 5,000 employees by mid-year. Perhaps the company thought the announcement would go unnoticed among the noise coming out of the Consumer Electronics Show in Las Vegas and MacWorld in San Francisco, but the pre-announcement was certainly noticed by Sprint investors, who drove share values down sharply.

Responding to flagging results, Sprint has announced a number of new senior vice presidents, including Bryan DiGiorgio for customer care, Matt Carter, tasked with holding onto Sprint's existing customer base, Bill Morgan, in charge of brand/advertising, and this week Brian Dziak, in charge of overall strategy. Clearly Sprint CEO Gary Forsee is looking for an injection of new ideas, as all the new execs come from outside the confines of Overland Park, Kan., and Reston, Va., Sprint's two headquarters.

Forsee also changed his mind and now intends to hire a COO to replace Len Lauer by the end of first quarter. When Lauer was dismissed in August, the company said the COO position would remain unfilled. It's not clear whether Sprint's board made the hiring of a new COO a pre-condition to granting Forsee the title of chairman last December.

Sprint has indicated the churn situation will likely get worse before it gets better, saying that it does not expect to return to net postpaid growth until the second half of the year. Here are some of the problems the company must overcome to turn things around:

  • Despite slight improvement from third-quarter 2006, Sprint's postpaid churn rate of 2.3 percent in fourth-quarter 2006 remains substantially higher than its primary competitors Verizon Wireless--with its less than 1 percent churn rate--and Cingular Wireless (now AT&T) with a 1.5 percent churn rate. Defections from the iDEN (Nextel) network should benefit from extensive network improvements that occurred in the second half of 2006 and early 2007 which the company says will return it to performance levels seen just prior to the merger. The company also launched two new hybrid CDMA/iDEN phones this week, the Motorola "Buzz" and "Blend," which should help retain iDEN customers by allowing them to keep their beloved push-to-talk service on iDEN while being able to access better network coverage and higher data speeds. The company plans to launch a hybrid iDEN/1xEV-DO device by second quarter.
  • Despite improvements to its credit practices, Sprint continues to add customers that other carriers reject. As the company learned five years ago (but apparently forgot), sub-prime credit quality customers tend to churn at a higher rate than prime customers. The company's continued flirtation with this customer segment may be the reason Sprint won't reach its internal goal of 1.5 percent churn anytime soon.
  • The company desperately needs to revamp its marketing campaign. Hiring a new ad agency this quarter will help, though Sprint executives still appear to favor the amorphous--and very yellow--"Power Up" campaign currently on the air. Let's hope the new agency can talk some sense into the company.
  • Sprint continues to be behind on handsets. The company only began offering the Motorola RAZR in fourth-quarter 2006, just as other carriers had moved on to the next big thing. In AT&T's case, that meant the Samsung Blackjack, for T-Mobile it was the BlackBerry Pearl and for Verizon Wireless, the LG Chocolate continues to garner a lot of attention. 
  • Finally, customer service, which has never been a strong suit for Sprint, has now become a liability for Nextel as well. The company's move to a single Amdocs billing platform by the end of the year should help improve relations between customer service representatives and customers.

It looks like another difficult year for Sprint. Although CEO Forsee is hopeful that 2007 will be a year of growth, there's a lot of moving parts that must come together to make that prediction come true.

Technology Business Research is a Hampton, NH-based research firm. Contact John Byrne at [email protected]. Contact Ken Hyers, at [email protected].

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