Sprint's Hesse confirms carrier is testing new rate plans

Sprint (NYSE: S) CEO Dan Hesse confirmed on the company's second-quarter earnings conference call that the carrier is trialing new rates plans in certain markets to determine if it should introduce more competitive pricing nationwide.

Click here for key slides from Sprint's second quarter earnings presentation.

The tests, which CNET reported on earlier this month, are ongoing, Hesse said, and the carrier has made no definite plans to change its nationwide pricing. While sales of Sprint's Framily plans are increasing "we believe our rates could be more competitive in certain segments," he said.

"Framily has become less competitive at certain" price points due to recent pricing promotions from Sprint's rivals, Hesse said. "We may need to make some adjustments to our pricing levels based on what we learn," he added. Hesse said Sprint is testing unlimited plans and plans that are metered. The Sprint chief said unlimited data for smartphones continues to be a key differentiator in the market.

"I would be very surprised if we did not continue unlimited offers in addition to what we'll call metered offers," he said.

CNET reported that Sprint is testing a shared data plan in select cities, as well as discounted versions of its Framily and individual plans.

Meanwhile, Sprint continued to bleed postpaid and prepaid subscribers in the second quarter and it likely will come out as the weakest of the four Tier 1 carriers in terms of subscriber growth during the period. However, its losses, particularly in terms of handset customers, were fewer than some analysts had expected. The carrier also said it is making continued progress on its network, with 254 million POPs now covered with LTE.

Hanging over Sprint's results is the continued speculation that Sprint parent SoftBank will strike a deal with T-Mobile US (NYSE:TMUS) owner Deutsche Telekom to merge the No. 3 and 4 U.S. carriers. However, according to a Reuters report, which cited unnamed sources, a deal is now not expected to be announced before September, as the carriers complete their due diligence and prepare a detailed case for a deal for U.S. regulators, who have expressed skepticism about such a combination. Representatives for Sprint, T-Mobile and SoftBank declined to comment, the report said.

Sprint said the overhaul of its entire 3G and voice network, which it called "one of the most complex network upgrades in history," is largely complete. Sprint executives have said that the Network Vision overhaul degraded subscribers' service as the network was upgraded, but executives have said they expect churn to improve in the second half of the year.

Here is a breakdown of Sprint's key quarterly metrics:

Subscribers: Including losses related to customers it acquired from U.S. Cellular (NYSE:USM) and Clearwire, Sprint lost a total of 334,000 net wireless customers in the second quarter, an improvement compared with 2.03 million in the year-ago period (when the Nextel network was shut down) and 467,000 in the first quarter.

The Sprint platform, which includes the carrier's CDMA and LTE networks and excludes customers it acquired from U.S. Cellular and Clearwire, reported a net loss of 220,000 customers in the quarter, compared to a net loss of 383,000 customers in the first quarter and 520,000 customers in the year-ago period.

The carrier said the Sprint platform lost 181,000 net postpaid customers during the second quarter. That figured included 646,000 handset subscriber losses and 70,000 losses from other devices, which were offset by 535,000 tablet net additions. Analysts at Jefferies had forecast Sprint to report 879,000 handset subscriber losses in the second quarter.

The 181,000 Sprint platform postpaid losses are down from a net gain of 194,000 postpaid customers in the year-ago quarter, which had included 364,000 subscribers recaptured from the now-defunct Nextel iDEN platform and 66,000 recaptured U.S. Cellular subscribers. In the first quarter Sprint reported Sprint platform postpaid subscriber losses of 231,000, which included losses of 709,000 handsets and 38,000 other devices offset by 516,000 tablet net additions.

Sprint said its prepaid platform lost 542,000 net prepaid customers during the quarter, primarily related to Assurance Wireless customers who did not complete their annual re-certification for the federal Lifeline program, which provides low-cost wireless service to low-income consumers.

Sprint also said wholesale and affiliate net subscriber additions on the Sprint platform came in at 503,000 in the quarter. The carrier said connected device subscribers, largely related to connected vehicles, made up majority of the subscriber growth. The company served 54.6 million customers at the end of the second quarter, including 53.3 million on the Sprint platform.

LTE network: Sprint confirmed that it hit its mid-year target for LTE coverage on its 1900 MHz spectrum, which had been 250 million POPs. The carrier said it now covers around 254 million POPs in 488 cities across the country with LTE, including Pittsburgh and Buffalo, N.Y., which launched today. Spark, the carrier's tri-band LTE service that uses 800 MHz, 1900 MHz and 2.5 GHz spectrum, is now available in 27 markets across the country. Sprint expects Spark service to cover 100 million POPs by year-end.

John Saw, Sprint's chief network officer, acknowledged on the carrier's earnings call that "building an entirely new network from the ground up has been a challenging task" but that Sprint now has a strong foundation on which it can innovate. He said Sprint will continue to enhance voice quality by deploying more 800 MHz cell sites and will strengthen LTE coverage in 800 MHz and 2.5 GHz. He said 800 MHz LTE now reaches more than one-third of Sprint's footprint; the carrier has previously said it would deploy 800 MHz LTE to 150 million POPs by the end of 2014. .

Saw said Sprint has started to deploy its 8T8R radios, which he said should "significantly improve coverage and speeds" of LTE, especially 2.5 GHz. By the end of the year, Sprint will deploy two-carrier carrier aggregation on its 2.5 GHz TD-LTE service, Saw said, producing peak downlink speeds of more than 100 Mbps. Sprint is currently seeding its customer base with devices that can take advantage of those capabilities, he said.

Hesse said that Sprint is working with Qualcomm (NASDAQ:QCOM) to accelerate the launch of devices that can take advantage of three-carrier carrier aggregation on its 2.5 GHz TD-LTE service. Those devices will come to market in the first half of 2015 instead of the second half of next year. Sprint plans to deploy three-carrier carrier aggregation on its network by the end of 2015, producing peak speeds of 150-180 Mbps.

Sprint also said its HD Voice service is now available nationwide and that more than 16 million customers, or 40 percent of Sprint's postpaid base, currently have HD Voice-enabled devices.

ARPU: Sprint's postpaid average revenue per user was $62.07, down from $64.20 in the year-ago period and $63.52 in the first quarter. Sprint said its higher tablet adds were a drag on ARPU because tablets generate significantly lower ARPU than other postpaid subscribers.

Financials: Sprint swung to a quarterly net profit of $23 million, compared to a loss of $1.6 billion when it acquired Clearwire. Revenue was $8.79 billion, slightly beating analysts' expectations, according to the Wall Street Journal.

Wireless retail service revenues clocked in at $6.9 billion for the quarter, down around 4 percent year-over-year, driven by declining ARPU and fewer subscribers on the Sprint platform, coupled with the loss of revenue as a result of the shutdown of the Nextel platform.

Churn: Sprint platform postpaid churn was 2.05 percent, up from 1.83 percent in the year-ago period but down from 2.11 percent in the first quarter. Sprint platform quarterly postpaid churn increased year-over-year primarily due to the network disruption issues related to the 3G upgrade. The sequential decline in Sprint platform quarterly postpaid churn was primarily driven by seasonality. Sprint said prepaid churn was 4.44 percent, compared to 5.22 percent in the year-ago period and 4.33 percent in the first quarter.

For more:
- see this release
- see this Sprint presentation (PDF)
- see this WSJ article (sub. req.)
- see this CNET article

Special Report: Wireless in the second quarter of 2014

Related Articles:
Analysts expect Sprint to bleed 879K handset subs alone in Q2 amid network upgrade troubles
Report: SoftBank, DT reach 'basic agreement' on Sprint/T-Mobile merger
Report: Sprint testing shared data plans in select markets
Sprint talks up Spark small cells, 8T8R antennas, but some analysts remain unimpressed
Sprint counters T-Mobile's iPhone test drive by reviving 30-day 'satisfaction guarantee'
Sprint details 'America's Newest Network' campaign, focuses on call quality, speeds

Article updated with additional information from Sprint.

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