A Sprint comeback? Yes, it’s possible
Wall Street shouldn’t rule out a Sprint comeback just yet. While the market shrugged off the aggressive new pricing plans the carrier announced Tuesday, a Sprint executive tells Fortune that the company isn’t done tweaking the cost of its phone plans.
This push to gain new customers comes at a time of upheaval for the company, which just replaced its CEO after negotiations to buy rival T-Mobile failed. It’s also rolling out an improved data network. If Sprint can win over a few converts from the big players and deliver on its ultra-fast data speed promises, it could again become a force to be reckoned with.
Sprint (S) upset the carefully balanced mobile carrier market Tuesday by offering an aggressive new pricing model for its group plans. Starting Friday, new customers will be able to link up to 10 devices to one mobile plan, sharing as much as 20gb of data, with unlimited talk and text, for only $100 a month. In addition, the carrier said it would pay off the early termination fee for AT&T (T) and Verizon (VZ) customers locked in long-term contracts if they switch over to Sprint.
But Sprint isn’t stopping there. Jeff Hallock, Sprint’s chief marketing officer, told Fortune “to stay tuned” for further announcements from the company this week. While he declined to go into specifics, Hallock did say it had something to do with pricing connected to its unlimited data plans, which Sprint offers to its individual subscribers. It may open the plan up by giving its customers unlimited data for all their personal mobile devices including their tablets and e-readers. It may be dropping the price to be more competitive with the bigger carriers. I guess we’ll have to wait and see.
For some reason, though, the market didn’t seem too enthusiastic about Sprint’s new data initiative. After the announcement Tuesday, the company’s stock fell as much as 5% for the day before recovering a bit on Wednesday. This seems unfair. Sprint’s strategy signals that the company is ready to move on as a stand-alone company and that it is willing and able to fight to remain a relevant player in the industry. Such moves should be praised, not punished.
Nevertheless, it is understandable why there is so much skepticism to this or any new initiative from Sprint. Starting from its disastrous acquisition of Nextel in 2005 to this year’s failed acquisition of T-Mobile (TMUS) – Sprint has managed to disappoint investors at every major turn. Customers haven’t had it easy, either. Confusing plans, dodgy customer service, bad network connectivity and more dropped calls then they care to remember, have all weighed heavily on Sprint’s beleaguered customers.
To make matters worse, Sprint ranked dead last among the four major wireless providers in almost every area of network performance for the first half of 2014, according to extensive testing by RootMetrics. Such terrible performance has seen flocks of Sprint customers leave in frustration. Adding to the misery, Sprint was found to be one of America’s “least respected” brands, according to a survey conducted by Corebrand, a marketing consulting firm. Phil Wahba of Fortune writes that companies were ranked, “according to people’s familiarity and favorable feelings toward them, company management and investment potential,” with the key phrase here being, “investment potential.”
However, for all its missteps, there remains some hope for Sprint. The company is going through a major transformation at the moment, which, if successful, could pay off big time for both consumers and investors. The most visible change to occur has been the replacement of Sprint’s long-time chief executive, Daniel Hesse, with tech billionaire Marcelo Claure. Hesse had been in power since 2007 and oversaw Sprint’s downfall. While he inherited much of Sprint’s chronic ailments, including the Nextel debacle, he proved ineffective in turning things around. At a recent town hall meeting with Sprint employees, Claure (who took over the CEO role earlier this month) said that Sprint would try to take on the big wireless providers by introducing “disruptive pricing” in the market. He also plans to cut some fat, acknowledging that job cuts are probably on the horizon.
But the biggest change is yet to come. Sprint is nearing the completion of an ambitious multi-billion dollar upgrade of its entire wireless network. It shut down Nextel’s old iDEN “push-to-talk” network in 2012 and redirected its capital spending towards the construction of a brand new 4G LTE data network across three cellular frequencies.
The most exciting part of the plan, and potentially disruptive, is the roll out of Sprint’s 4G LTE service carried over the 2.5gHz cellular frequency, known as “Sprint Spark.” It isn’t the most desirable spectrum to transmit data on given its limited transmission range. But what it lacks in range it makes up in quality as the signal is more concentrated. This should give Sprint customers living in densely populated urban areas access to fast 4G LTE speeds that could quickly rival or even eclipse its competitors operating on lower bands.
As of now, the Sprint Spark network is only available in 27 major markets, with speeds averaging a decent 12Mbs to 15Mbs, which is on par with the average speeds of rival networks. The company told Fortune that it plan to grow the network to cover 100 million people by the end of the year, while eventually delivering peak speeds of between 50Mbs and 60Mbs. By 2016, the company says it hopes to deliver speeds well beyond 100mbs, which would blow away the competition.
Attaining those kinds of speeds before the other wireless carriers are able to do so would give Sprint a distinct advantage in the market. Verizon, the nation’s largest wireless provider, noted in a recent government filing that Sprint holds nearly twice the overall amount of spectrum that it does, while having only half the number of subscribers. Sprint, therefore, has plenty of room to grow.
Claure’s main goal now is to grow the subscriber base as quickly as possible. The decision to pay the penalties for those AT&T and Verizon customers switching over to Sprint is similar to T-Mobile’s “Uncarrier” plan launched earlier this year. So far, the Uncarrier campaign has performed quite well for T-Mobile. The company announced earlier in the summer that it increased its subscriber base by 1.5 million in the second quarter, reversing the crippling downward trend in its user base.
Hallock acknowledges that things have been “tough” during the transition, noting that Sprint customers, “have had to deal with a lot of dust” amid the remodel, but he says that they should stick with Sprint now as it enters the final stages of its transformation. As companies can change for the worse, they can also change for the better. As such, it may be time for investors to bury the hatchet and cut Sprint’s new management a little slack.