LEX Sprint Nextel’s investors initially cheered quarterly results that showed a slowdown in customer losses, particularly the more lucrative post-paid variety. Ready to raise a glass to a potential turnround, though, they soon saw it as half-empty. The third quarter enjoyed the full impact of new device launches, yet all Sprint could do was lose 800,000 post-paid customers. or 190,000 fewer than a quarter earlier. This was partially offset by more pre-paid users, who now make up 12 per cent of the total. The change in mix was partially behind sagging revenues.
Sprint’s average monthly revenue per post-paid user was $56, compared with just $35 for pre-paid customers. The latter figure has at least stabilised, but this too comes at a price: more unlimited plans that eat network capacity. It has little choice, being engaged in a price war not only with pre-paid specialists such as Leap Wireless but also its fellow national carriers. And, while post-paid customers are cheaper to reel in, they are also harder to keep. Customer turnover in the quarter was 2.2 per cent for post-paid versus 6.7 per cent for pre-paid. Even the latter figure is worse than market leaders AT&T and Verizon, which collectively added 3.2m customers last quarter.
Aside from competitive challenges, Sprint must cope with a daunting debt load. It is generating enough free cash flow to do so – barely – through restrained spending, but things will get tougher as revenues shrivel.
So recurring rumours of an acquisition by Deutsche Telekom seem credible. A link with similarly struggling T-Mobile would see the combined group match AT&T and Verizon in terms of size and unlock savings. The only alternative is to keep competing on price in its least profitable lines in an industry-wide sprint to the bottom.
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