Everyone's Picking on SprintMonday, January 21, 2008
I know why Sprint Nextel has become an easy target―it is losing subscribers on both of its networks and its churn is high. Reported churn rates are either for a month or a quarter, so to understand the full impact of a churn rate, you have to multiple it by twelve or by four. Thus, if monthly churn is 3%, the yearly churn for that company is 36%, which means that the company loses a third of its customers in a year! Obviously, the lower the churn rate, the better.
On top of this, Sprint is trying to grapple with the Nextel 800-MHz re-banding efforts it inherited. Here it is spending a lot of money, and time, making sure that frequencies for police department systems in the same 800-MHz band are being changed to lessen the interference Nextel has been causing them. An added benefit of this re-banding is that Nextel will end up with 3 MHz of contiguous spectrum and could deploy CDMA or even UMB services on this spectrum once the re-banding is completed. Such a move would provide for both additional capacity and better coverage in some areas than with its existing 1900-MHz-only system.
Sprint is, of course, still trying to integrate the two companies, and the technologies, while keeping the Nextel push-to-talk installed base in place until it can add QChat (the Qualcomm version of PTT) to the Sprint network, and it is also building out a very expensive WiMAX network.
Sprint just announced that it will be laying off about 4,000 people and closing about 8% of its direct and indirect stores in an effort to save money and to get the company back on track. Its new CEO Dan Hesse, who has been around the industry (mostly on the wired side) certainly has his work cut out for him. An ironic point here is that the money Sprint is projecting to save in 2008 by making these cuts is less than the amount of money Intel, Motorola and others threw at Sprint to convince it to build out the WiMAX network.
After the layoff and store closing announcements, Sprint's stock dropped almost 25% to $8.70 per share. Even with the many problems Sprint has to face, if I were still writing for Forbes and its investment-hungry readers, or if I bought hi-tech stocks myself, I would without a doubt move on this stock based on this price (this is NOT a recommendation).
Can Sprint right its ship? At a time in telecommunications history when the two largest companies in the United States, AT&T and Verizon, are moving closer to integration (convergence?) of their wired and wireless assets, it seemed strange to me that Sprint divested itself of its wired side and said it was going to become solely a wireless company. Perhaps that is because Sprint's wired side did not sell to homes and businesses except for long distance services, but who knows? In any event, I have always questioned that move.
I still believe Sprint can return as a profitable contender in the wireless business. It needs to get back to basics, figure out what to do first and probably stop making announcements about joint ventures such as the cable deal it announced and now has basically pulled out of, as well as the Sprint/Clearwire deal that quickly fell apart.
Sprint has licenses for a LOT of spectrum around the United States, it offers some popular consumer services and it appears as though one of the reasons it wanted Nextel was because it wanted to capture the business installed base. Instead, it made some bad decisions and had trouble integrating the two different networks. Then someone in upper management became so enamored with WiMAX that I don't think anyone opened a spreadsheet and studied the impact of building yet another network.
AT&T (Cingular and AT&T) struggled along with analog, TDMA, GSM and then UMTS―four different technologies―but at least the merger kept the technologies the same so they could get their arms around it. The logistics of moving Nextel customers over to Sprint and implementing QChat, and doing so in a timely manner, is a tall order and requires the different elements of the plan to stay on schedule and within budget. So far, it looks to me as though re-banding is way over budget and that it will drag on into 2012 in some portions of the nation, and now the FCC has decided to hold Sprint's feet to the fire and force it to vacate the 800-MHz channels by June of this year, which could further hinder its attempts at a smooth transition.