Lowenstein's View: Memo to new Sprint CEO: How to turn things around

Mark Lowenstein

I maintain that a deal between Sprint and T-Mobile, or some form of consolidation to three national operators from the present four, would have been good for Sprint, and best for the long-term health of the U.S. wireless industry. But, with the news of the past week, it appears that Sprint is going to go it alone for the foreseeable future.

Despite Sprint's difficulties over the past several years, I have great admiration for Dan Hesse. He inherited a disastrous merger, but made some gutsy calls that caused short-term pain but could position Sprint well for the future. Sprint has also been a solid corporate citizen, for example leading the industry on green initiatives, and has been an important contributor to the Kansas City economy. 

The new CEO, Marcelo Claure, has a significant challenge ahead: Organic subscriber growth has plateaued; the industry is already highly competitive; Sprint's network continues to trail the competition; and T-Mobile has picked off some of the lower hanging fruit of good ideas and potential differentiators, as the industry underdog, over the past 18 months. And, no other country has four facilities-based wireless operators who are all viable and profitable.  

With that background, here are some thoughts for Sprint's new CEO.

Dear Marcelo, 

Welcome to this exciting and challenging role. Although you are surely aware of the challenges Sprint has faced over the past few years, your predecessor, Dan Hesse, made some of the right calls, especially with regards to thinking long-term with the network rip and replace. Your single greatest opportunity is to leverage that network, as it is completed, into a differentiated value proposition, for both the industry and for customers.

Here are some thoughts on how to attract and retain subscribers, grow the business, and make Sprint great again.

1.     Reward customers who have stuck with you during the "pardon our dust" phase. The network has gotten worse on the way to getting better. Send a welcome note to all Sprint customers, introduce yourself, tell them where Sprint is with the "network repair" project, and figure out a retention bonus for Sprint customers--not unlike what companies do for employees when they are going through a challenging period. Some ideas: 10 GB of free data (for customers not on the UNL plan); a credit toward a new Spark phone; the ability to attach another device to a plan free of access fees; or a loyalty 'credit' for every month a customer stays with Sprint.

2.     Use Your 2.5 GHz Network to Offer Something Different. It won't be enough to just say the network is faster and better than the competition. Their networks continue to improve as well, and a good LTE connection in a market with sufficient spectrum and network capacity meets 90 percent of what most users want to do with their devices today. If the combined resources of Sprint's network deliver as promised, focus on differentiated services, such as:

·       High speed video in urban markets

·       Fixed broadband services, to those who are price sensitive and/or don't want to pay a combined $400/month to their cable and cellular providers. I'd say there's 25-30 percent of the market that's addressable here. OTT video not included.

3.     Develop Creative Partnerships. The Spotify deal is a good first step. I'd like to see you do something creative in video, and there are deals to be had in terms of sponsored or ad-supported content. Hulu, Amazon, Netflix, Yahoo, AOL, and YouTube leap to mind. They could subsidize part of the data plan, offer ad-supported services, or engage in some sort of creative MVNO relationship. This combination could help mobile become a bigger part of the OTT world, over time.

4.     Try to Stick With Unlimited. This has been a solid differentiator. However, when you offer a true broadband experience on LTE/Spark, 'unlimited' might cause a spike in usage. The economics of mobile don't support more than about 10 GB of consumption per user per month particularly well. So, you're going to have to put some parameters around Unlimited, such as forcing users onto Wi-Fi in certain circumstances, and so on. 'Unlimited' data in mobile generally has an asterisk around it, but I can't see a way around this when video is considered.

5.     Revamp the Marketing Message. I'm sorry, but "Newest Network" and "Framily" don't do it for me. With the new team on board, the Spark network being launched, and Masa's pricing initiatives on the way, it's time for a fresh and new über marketing message. I'd focus it on innovation--innovative network, innovative services, innovative business models.

6.     Be the Partner Company. MVNOs and the wholesale business have been a big part of what's kept Sprint afloat as the postpaid business tanked. In a 'mobile first' economy, there are many companies and brands that want access to a wireless network on reasonable and predictable terms. You could be the operator that pursues such opportunities transparently and aggressively. Internet big boys such as Apple, Google, Microsoft, Amazon, Hulu, Netflix, and DISH, and even major content brands, might be looking to bundle in wireless services, or engage in some form of wholesale relationship. AT&T and Verizon, in part due to their cable and telco interests, are less 'open for business' in this regard. You are less conflicted.

7.     There's Opportunity on Price, But Be Careful. Many analysts believe Sprint will launch an aggressive price war, as SoftBank has done in other countries. U.S. wireless pricing remains comparatively high, so there is room for price cuts, especially as network economics and spectrum holdings improve. I'd caution against being overly aggressive on price, because really low prices combined with true mobile broadband and multiple devices per user could kill the network. There's a huge delta today between average usage on fixed and mobile broadband networks. I can see that narrowing over time, but this must be carefully managed. Plus, the price wars in many European countries have been disastrous for some of the operators.

8.     Don't Trash Customer Service.  There are rumors that as part of an effort to cut costs, you're going to take a huge whack at customer service. Remember that Sprint did this once before, and it took Hesse & team years to rebuild Sprint's reputation for poor customer service. Sprint has given its customers enough reasons to switch carriers over the past few years--this is not the time to do anything that will detract from the customer experience.  

9.     You Need Another "Business" Besides Wireless. AT&T and Verizon are multi-play communication service providers, are strong in the enterprise market, and have also made some big bets in areas such as connected home, connected car, IoT, and content. Over time, Sprint needs to develop some "Big M" market opportunities, beyond providing wireless services to consumers, that are going to contribute billions, not millions, to the bottom line. You are already part way down that road with a vibrant MVNO/wholesale business, and there are additional creative opportunities to be mined there. M2M is growing nicely but the curve is linear, not logarithmic. Video, and fixed broadband, are two areas that leap to mind. And no one operator has truly figured out the small business (SMB) market. You have also made some good early bets in m-health, which is an area that is sure to be big in a few years.

10.  Crowd-Source for Ideas. Service providers go to great lengths to prevent churn or win customers back. But they do precious little to communicate with their customers mid-stream, ask how happy they are with their service, or poll for ideas. They really don't have a great handle on what their customers are thinking. Your customers might be a great source of ideas for new concept and services. Don't underestimate them.

Mark Lowenstein, a leading industry analyst, consultant, and commentator, is Managing Director of Mobile Ecosystem. Click here to subscribe to his free Lens on Wireless monthly newsletter, or follow him on Twitter at @marklowenstein.

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