Sprint (NYSE: S) CEO Marcelo Claure said that the company has added postpaid handset customers for four months straight through August, the first time the carrier had done that in 40 months. Claure said that was one clear sign that the company's turnaround is taking root, and he vowed that by the end of 2017 he wants Sprint to be ranked No. 1 or No. 2 in network performance in at least 80 percent of all major markets in the U.S. Claure said in May that he wanted to achieve that in 18 to 24 months, so his new timeline is pushing that goal back by several months.
Speaking at the Goldman Sachs Communacopia conference, Claure said that Sprint's churn is down to a record low and that it is one of the most important metrics to look at. In the second quarter Sprint's postpaid churn was 1.56 percent, compared to 2.05 percent for the year-ago period and 1.84 percent for the first quarter. Claure said Sprint's churn numbers should continue to improve because of the company's improved network quality, its pricing and its handset leasing program.
"I think from a network perspective we're getting better dramatically," he said.
In terms of pricing, Sprint is the leader in terms of value, Claure said, even if that is not yet the consumer perception. And, he noted, Sprint led the way on smartphone leasing, which T-Mobile US (NYSE:TMUS) and Apple (NASDAQ: AAPL) have since adopted.
Claure said that he thinks Sprint's "iPhone Forever" program, under which customers can trade in their old iPhone any time a new one comes out and start a new leasing agreement, will be a big hit with the forthcoming launch of the iPhone 6s and 6s Plus. However, for the time being, Sprint is still offering subsidized smartphones with two-year contracts.
Indeed, Claure said that Sprint customers can go to Best Buy or Target stores and get a new Sprint iPhone for $1 with a two-year contract. However, he said that in the future Sprint might embrace a leasing-only model, a softening of his earlier reported stance. "So we're going to continue to push for subsidy for the time being towards the end of the year," he said, according to a Seeking Alpha transcript of his remarks. "And I think the future of Sprint might be to potentially be a leasing company only and we're going to continue to evaluate that, but that's going to be our primary way to go market."
Claure said that in the past quarter Sprint grew the number of customers with prime credit by 47 percent among its gross handset additions. Claure said that Sprint will continue to raise the bar on credit quality because that translates to lower churn and higher profitability.
Sprint has also been growing handset sales because of increased distribution. The company bought 1,435 RadioShack stores and also operates its Direct 2 You initiative, where Sprint employees drive to customers' homes to set up their phones. Claure said these efforts are still ramping up; he said only 10 percent of the RadioShack stores have Sprint signage out front. He also said Direct 2 You is in 22 markets and will continue expanding. However, Claure said these efforts are very cost-effective ways to expand distribution because Sprint only pays 20 to 25 percent of the rent in RadioShack stores and that operating a car is much less expensive than opening a new store.
Claure also fleshed out Sprint's network densification plans. He said "virtually all" of Sprint's existing macro cell sites will be upgraded to support 800 MHz, 1900 MHz and 2.5 GHz for LTE. Sprint plans to deploy thousands of new macro sites and initially tens of thousands of small cells.
Claure said that Sprint will not use traditional network vendors or tower companies for its deployment, and will convert capital expenditures into long-term operating expenses. He also said Sprint has "a lot of flexibility" in backhaul, and that using its 2.5 GHz spectrum for backhaul is one of several elements to the company's backhaul strategy. Sprint plans to leverage its spectrum position -- with 120 MHz of 2.5 GHz spectrum in 90 of the top 100 markets -- as well as the densification and carrier aggregation to improve its network across the country.
"We have a plan, we review that plan on a daily basis and we're executing it properly," he said.
Claure also said that in the next few weeks Sprint will announce whether or not it will participate in next year's incentive auction of 600 MHz broadcast TV spectrum. He said Sprint thinks its current spectrum position allows it to have a network that will be No. 1 or No. 2 in the next two years.
Additionally, Claure said Sprint's management team has a "line of sight" to when the company will be generating positive free cash flow, but he declined to set a date publicly. He did say Sprint's finances will benefit from the leasing companies it is setting up with parent SoftBank and other companies to finance the leasing of handsets and network gear.
Sprint is finalizing the structure of the handset leasing vehicle now, and once it's running the firm will lease devices to Sprint at the same price that it is offering the devices to customers. In other words, if Sprint pays Apple $600 or $700 for an iPhone, the leasing company will then give that same amount of money to Sprint and finance the residual value of the device. Claure said Sprint will unveil the leasing vehicle for network gear shortly after the one for handsets is announced.
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Correction, Sept. 18, 2015: This article incorrectly stated that in the past year Sprint grew the number of customers with prime credit by 47 percent among its gross handset additions. Sprint CEO Marcelo Claure said it grew that much in the last quarter.