Sprint's expanded distribution and roving cars won't mean much without a better LTE network

Phil Goldstein

Sprint (NYSE: S) has made a lot of news recently about plans to expand its distribution and even bring phones directly to customers. It's all part of an effort to retain the company's customer base and drum up more sales in the hopes of growing net subscriber additions. However, unless Sprint clarifies its brand message and improves its 2.5 GHz LTE network, I fear it will not amount to much.

Last week Sprint opened 1,435 stores it has co-branded with RadioShack, which recently emerged from bankruptcy protection. Sprint is taking up a third of the space in the stores and will spend the next several months refurbishing them. The stores offer devices and services from Sprint and Sprint's Boost Mobile and Virgin Mobile brands.

Then this week Sprint unveiled "Direct 2 You," a new service in which its employees will travel to wherever customers are to help them set up the phone they are upgrading to. The service is starting in the Kansas City, Mo., metropolitan area near Sprint's headquarters, and on April 20 it will expand to Chicago and Miami. Sprint plans to roll out the program throughout 2015 and eventually have up to 5,000 Direct 2 You cars on the road.

Will all of this improve Sprint's subscriber numbers and get it back to growth? It's tough to say. Industry analysts I spoke with said there is not a lot of reliable data on how expanded distribution affects wireless sales.

Let's look at Direct 2 You first. Recon Analytics analyst (and FierceWireless contributor) Roger Entner estimates that each service call under the program will cost Sprint $100 to $150 (paying the Sprint employee who is driving $25 per hour, with a call taking an average of two hours, plus the cost of the car, car insurance, training and overhead). "$100 for you changing the phone is an expensive undertaking," he said.

Entner said Sprint's biggest problem is that its LTE network is still slower than those from its competitors, despite the trove of 2.5 GHz spectrum Sprint holds. Network testing firm RootMetrics said that in the second half of 2014, despite the strides Sprint made on improving voice and texting performance, Sprint still had the slowest network and weakest data performance of the four Tier 1 U.S. carriers.

"I don't think the pain point of why people are leaving is because they couldn't manage how to change their phone," Enter said. "It's more about the network. And the network has its problems if the company changes its phone for you in your house or not."

Current Analysis analyst Lynnette Luna said that the Direct 2 You concept is "an interesting and expensive proposition" but is probably designed to make Sprint's most profitable, long-time customers happy and not much more. (Starting in September in a few markets, Sprint plans to offer the service to new customers, but for now it is geared toward existing customers looking to upgrade.)

An alternative theory is that Sprint is not actually counting on many customers using the Direct 2 You service. Instead, perhaps the Direct 2 You service will help elevate Sprint's brand among customers overall, as they see more and more Sprint vehicles on the road. Such a situation could drive more interest in Sprint and increase traffic to its stores.

Which brings us to RadioShack, a relatively limp brand among consumers. The RadioShack stores that Sprint is moving into were probably among the better-performing ones that RadioShack had, but they couldn't have been that great at driving traffic--otherwise why would RadioShack have filed for bankruptcy in the first place?

Entner noted however that if Sprint can drive more traffic to these stores, then it likely can bring in customers who deliver a higher average revenue per user, since customers brought in through carriers' directly-owned stores tend to have highly monthly recurring charges than those carriers acquire through third-party retailers. These customers are also more likely to buy high-margin accessories, he noted.

Luna added that the RadioShack strategy could be a boon for Sprint's prepaid business. "For prepaid, you want distribution in as many places as possible to give people the opportunity to top up their plans," she said. "This also means Boost and Virgin don't have to compete with other prepaid brands in RadioShack stores. Virgin and Boost have solid reputations as prepaid providers. I would hope that there would be some retail branding for those sub-brands alongside the Sprint brand at the RadioShack stores."

However, Luna also noted that "all of the distribution in the world doesn't help if you don't have a strong brand and a solid network. It succumbs to the law of diminishing returns."

Eight months after Marcelo Claure took over as CEO, Sprint is still working to establish a clear brand message. Claure has positioned Sprint as the "best value in wireless" by offering to cut customers' bills in half if they switch to Sprint from AT&T Mobility (NYSE:T) and Verizon Wireless (NYSE:VZ) and buy a new phone. Sprint's unlimited plan for non-iPhone6/6 Plus customers is $60 per month, $20 cheaper than T-Mobile's plan. Sprint is also reimbursing all of the costs for a customer to switch over, including their Early Termination Fees and any remaining payments on equipment installment plans, no matter what customers owe. 

We'll see how the first-quarter results come out, but I don't think Sprint's "best value" message has caught on with consumers yet. That's understandable, since Sprint only launched the "cut your bill in half" campaign in December. But Sprint will need to do more than just offer cheaper prices if it wants to offer real value to customers. Its recent plan to offer free international data roaming to 15 countries is definitely a welcome addition, but Sprint will need more innovative offers than that to stand out (especially since T-Mobile has offered a similar program in more than 120 countries since the fall of 2013).  

More urgent for Sprint is its network. John Saw, Sprint's chief network officer, told FierceWireless in March 2014 that the carrier planned to expand its tri-band LTE Spark service to a two-carrier configuration on its 2.5 GHz TD-LTE service toward the end of 2014, though he acknowledged at the time that the launch could happen early in 2015. Yet we still have not seen 2x carrier aggregation on a wide scale. That's what is supposed to set Sprint apart from its peers in terms of network speeds, and although it may be live in a handful of markets, it's nowhere close to nationwide or even in dozens of markets. Until that comes online in a big way, Sprint will still be behind its competitors.

I applaud Claure for taking the moves he has since he took the helm. Adding high-value shared data plans, being aggressive on price and expanding distribution are all good steps. But Sprint's brand image suffered as it underwent its Network Vision program and network quality degraded before it improved. I think the carrier is still trying to overcome that. Without an improved brand and a faster LTE network, Sprint's Direct 2 You cars will be driving on a road to nowhere.--Phil

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