Sprint's fourth quarter results highlighted the company can move in the right direction---even though it's still reporting losses---and can aggregate customers on its network. But Sprint's future risks highlight why the company was hot for acquiring T-Mobile.
First, the good news. Sprint reported a fourth quarter net loss of $1.04 billion, or 26 cents a share, on revenue of $9.14 billion. It's hard to see how a loss that big is a good think until you consider that Sprint was expected to lose 33 cents a share.
Meanwhile, Sprint had 53.9 million subscribers with 682,000 net additions and 58,000 post-paid customers.
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Clearly, Sprint has some mojo, but there are a few issues worth pondering. Among the big ones:
Tablets drove the subscription base for Sprint. Tablets aren't so bad, but those customers inflated the numbers. Sprint CFO Joe Euteneuer said:
As Sprint platform postpaid gross adds were up 3 percent year-over-year we added 466,000 postpaid tablets in the fourth quarter as the introduction of our installment billing option and a popular device portfolio helped us gain meaningful share in the tablet space.
While the tablet net adds were certainly a driver of our total Sprint platform postpaid net adds we also added 157,000 higher revenue-generating smartphone customers in the quarter.
In other words, Sprint makes more from smartphone customers---especially the postpaid kind.
Sprint won't grow subscribers in the first half. CEO Dan Hesse and other Sprint execs said that they expect postpaid and prepaid losses in the first half of the year with growth in the second half.
The wireless business is slowing. Sprint anticipates taking share with its Framily plan and other service bundles, but the industry is slowing, there's smartphone fatigue and T-Mobile is very aggressive. Stifel analyst Christopher King said in a research note:
We find it difficult to reconcile management’s guidance for taking gross add share, lowering churn and growing ARPU in an environment that consists of slowing industry growth and very large, and increasingly aggressive, competitors.
Indeed, Hesse said he expects churn levels in the first half to "remain elevated."
The competition. T-Mobile is very aggressive with its marketing and plans to poach customers. T-Mobile appears to be going after Verizon and AT&T, but will crowd out Sprint as collateral damage. It's unclear whether Sprint's Framily plan is enough defense.
Sprint's Framily plan isn't a slam dunk. The company's Framily plan is a family plan that includes friends for larger data discounts. Sprint didn't start advertising Framily plans until Jan. 17 so "it's too early to tell" about success, said Hesse, who did note that "early indications are quite strong."
Sprint's network buildout hurts word of mouth. It's great Sprint is bolstering its network and LTE rollout. The catch is that it hurts performance and churn. Hesse said:
We have observed an inverse relationship between the network construction impacts and our customers' likelihood to recommend Sprint to others. As the construction dust peaks, the likelihood to recommend Sprint to client declines.
Hesse's bet is that once Sprint's network build is complete customers will turn up. Sprint will have to also improve its customer satisfaction scores.
Sprint needs to bulk up but has limited options. The T-Mobile purchase for Sprint is complicated and highly unlikely. However, Sprint has to grow if it wants to compete with Verizon and AT&T. Sprint is in a tough spot and a big merger is increasingly unlikely.