Sprint's Robbiati vows to keep improving on the network and churn even amid cost cuts

Sprint (NYSE: S) is in the middle of its turnaround but has a lot of cause for optimism, according to CFO Tarek Robbiati, who promised that the carrier will continue to make improvements in churn and its network.


Robbiati, in his first appearance at an investor conference since becoming Sprint's CFO a little more than two months ago, said that the company has stopped hemorrhaging customers and is improving its top-line growth. Sprint platform churn in the third quarter was once again at a record low of 1.54 percent, down from 2.18 percent for the year-ago period and 1.56 percent in the second quarter.

"We can take it further down and we will be working in taking churn further down," Robbiati said during an appearance at the Wells Fargo Securities Technology, Media & Telecom conference.

The carrier is also making progress after losing millions of postpaid customers before Marcelo Claure took over as CEO in August 2014. Sprint reported that it gained postpaid handset customers on the Sprint network in the third quarter, the first time it had done so in a full quarter in more than two years. During the quarter, 199,000 prepaid customers with consistent payment history migrated to Sprint's postpaid service. Sprint added 237,000 postpaid phone customers in the period, compared to net losses of 500,000 in the prior year quarter, an improvement of 737,000 year-over-year. Excluding migrations from prepaid, postpaid phone net additions would have been 38,000.

The company is also going to be cutting as much as $2 billion in operating costs in the next few months and Sprint Chairman and SoftBank CEO Masayoshi Son has said that will involve "thousands" of job cuts.

Robbiati said that there are numerous areas where Sprint can slash costs. He said the carrier has a "huge opportunity" to cut costs on its cost of service by reducing how much it pays to competitors, most likely Verizon Wireless (NYSE: VZ), in roaming costs. Sprint will accomplish this by continuing to build out its network, he said. Sprint also is cutting down the cost it pays for backhaul and said the "vast majority" of Sprint's backhaul is now fiber.

Additionally, the Sprint finance chief said that Sprint can cut back on IT and customer care costs, be more efficient with its marketing budget, and trim general and administrative expenses. As a relative outsider to the company, he said Sprint struck him as being a "very, very complex" business. "It doesn't need to be that complex. It's mind-boggling," he said.

Robbiati noted that Sprint hasn't regularly turned a profit in more than a decade. "It's not possible and we will not accept to keep that company at that state," he said.

The third key piece of Sprint's comeback is the continued improvement of its network. Robbiati said there are three core metrics that are "really important" to the company. One is dropped voice calls, which he said can be the "most frustrating" part of the customer experience and is what causes customers to leave. "Dropped calls have really improved materially, well below the 1 percent," he said, adding that Sprint thinks it can take that figure down by half of where is now, at a rate of 0.6 percent.  

The second metric is "time on LTE," which is really a descriptor of LTE coverage and is what Robbiati said is the "measure by which every network in the world should be measured." Currently, around 80 percent of Sprint's data traffic runs on its LTE network (for comparison, Verizon says 89 percent of its data traffic runs on LTE).

The third key metric is speed. Robbiati said Sprint customers are seeing real-world speeds in excess of 75 Mbps if they have phones that can use two-channel carrier aggregation in the 2.5 GHz band. Sprint currently has 12 devices that are capable of accessing two-channel carrier aggregation, including the iPhone 6s and new Samsung Galaxy S6 models. The technology melds together non-contiguous blocks of spectrum to produce wider channels for more capacity and higher data speed. The deployment is ongoing in 80 markets across the country. In the past Sprint has named Atlanta, Chicago, Detroit, Houston and San Francisco as some major markets where the deployment is ongoing. 

Robbiati said the deployment of carrier aggregation "has materially improved our network" and that it can be accomplished via software upgrades to the network and does not require truck rolls to towers.

More than 60 percent of Sprint's recent customer acquisitions involve handsets capable of accessing two-channel carrier aggregation, Robbiati said, acknowledging that Sprint will need to upgrade more customers for the effect to be fully realized within the customer base. "It's a very, very material step moving forward," he said, adding that it gives Sprint a "nice, reinforcing virtuous circle."

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