Sprint Nextel (NYSE:S) has a lot to smile about after its second-quarter earnings announcement. The carrier posted a net subscriber gain of 111,000 customers--its first venture into net subscriber gains in three years. Sprint also had its best postpaid churn ever, at 1.85 percent. The folks over in Overland Park, Kan., should pat themselves on the back for a job well done. My question is: What's next?
Of course, it's worth taking a moment to recognize how far Sprint has come in the span of a few years, and what kind of company Sprint CEO Dan Hesse inherited from Gary Forsee at the end of 2007. Sprint's brand and reputation were in tatters: Subscribers were leaving in droves, customer service was rated terribly, activist investors like Ralph Whitworth were rattling management, and the company's relationship with and plans for Clearwire (NASDAQ:CLWR) were anything but clear. Everything seemed to hit a low in the first quarter of 2008, when Sprint lost a whopping 1.09 million subscribers and customer satisfaction hit an all-time low on the American Customer Satisfaction Index.
However, for ten consecutive quarters, Sprint's customer service ratings have improved and, according to Hesse, the ACSI ranked Sprint as the company that has improved the most over the past two years. Sprint said it now expects to have positive total net wireless subscriber additions during the remainder of 2010.
Sprint's trump card for the past year and a half has been its relationship with and majority stake in Clearwire and its mobile WiMAX network. Sprint has been pushing 4G as both a strategic imperative and as a key part of its brand--a way to set itself apart from the competition. And the launch of the HTC Evo in the second quarter, Sprint's first 3G/4G smartphone, provided a clear boost to the carrier's second quarter results.
But Sprint has been relentlessly promoting the fact that is has the "first and only" 4G network, and that will soon change. Both Verizon Wireless (NYSE:VZ) and MetroPCS (NASDAQ:PCS) plan LTE launches this year, while AT&T (NYSE:T) plans LTE for next year. Even T-Mobile USA is putting pressure on Sprint by arguing its HSPA+ network provides "4G speeds." Sprint's first-mover advantage appears to be fading. What to do?
My bet is on a prepaid 4G service offering, which Sprint has hinted about and which Hesse has told me is still being discussed internally. Such a plan would combine two elements of Sprint's core philosophy: the flexibility and growing strength of prepaid and the advantages of mobile WiMAX. And if such an offer were provided with unlimited data, it would stand in stark contrast to Verizon's LTE offerings, which are likely to be priced around a postpaid, usage-based model.
Sprint has made progress, but its fortunes could get roughed up by any number of factors: for example, if Verizon gets Apple's (NASDAQ:AAPL) iPhone. To truly succeed, Sprint may need to do something more--something dynamic.
On the company's earnings conference call Hesse said that in a recent interview with NPR he likened Sprint's turnaround to a baseball game. The first three innings have been about achieving stability; the second three will be about growth and the last three will be about delivering best-in-class services. If Sprint were a team and I were one of its fans, I'd be hoping that its manager had an ace closer like Mariano Rivera warming up in the bullpen. --Phil