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I still believe Sprint can return as a profitable contender in the wireless business. It needs to get back to basics

Everyone's Picking on Sprint

Monday, 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.


What would I do if I were running Sprint Nextel? First, I would build out WiMAX only enough to keep the licenses for the 2.5-GHz spectrum. Second, I would put a lot of effort into the Sprint side of the business, meaning my consumer base. And third, I would try hard to bolster my Nextel base of business customers. I would not worry about the fate of WiMAX, or the transition plans for Nextel customers; I would spend my time stabilizing both installed bases once again, and then I would spend time on the transition. In other words, I would fix what is most broken before I tried to implement changes. Sprint's shares are worth more than $8.70 per share―perhaps not today, but in the future. Of that I am certain.
Andrew M. Seybold

COMMENTS: This is an archived post. Commenting is no longer available.

ScottĀ Goldman - 01/22/2008 20:05:57


In my humble opinion all of your comments regarding what to do with Sprint/Nextel are valid and should be followed by the company. Some of the things that have distracted and diverted them their mission (whatever that is) are hard to understand. PTT - the fundamental backbone of Nextel... totally ignored in the list of priorities. WiMAX - with its valuable spectrum but expensive build-out, percolates to the top of the list?

My perspective differs a bit from yours, I think, in that I'm looking at the situation from a marketing perspective. The technology issues are, as I said, clear to me - and highly important - but the thing that has always struck me is the conspicuous lack of identity that the company exhibits. True or not, the population recognizes Verizon as the "reliable" network, Cingular/AT&T as the source of more products and services to choose from and T-Mobile as the network for anyone born after cell phones were commercialized (a scant 23 years ago, for those not historically inclined). Translation: it's for kids and teens and 20-somethings (I'm so tired of the Gen-X/Y/Z/Q connotation), not for adults.

But if that is true, then who or what is Sprint? Are they the business network? The friend of the plumber and construction worker? The business tool with the fastest data rates? I don't know - and I don't think that anyone else (including people at Sprint) do either. And that, if you ask me, is the crux of the problem.

Technical issues can be overcome without much push-back from subscribers - witness the conversion that you mention in your posting about AT&T's migration from TDMA to GSM and ultimately to UMTS. Marketing issues, however, can linger - without the right identity even the best technology can lie fallow. With a great, established and clear identity (think Apple) combined with great - or even good - technology a company can establish a beachhead for themselves to build upon in the future.

In short, I think that Sprint has lost their marketing mojo and until they nail that down the technical issues won't matter.

As always, it's just my 2 cents worth. :-)