Sprint: Can it convince customers to stay?
Sprint had some good news Wednesday: The wireless provider lost 901,000 net customers and only 776,000 post-paid subscribers in the second quarter. Wall Street was expecting more customer defections. For instance, Morgan Stanley was expecting post-paid subscriber losses of 947,000. But let's get real here: Sprint is on the ropes and customer service woes render the company an afterthought.
In fact Sprint said in a statement that it "currently expects to report higher post-paid subscriber losses in the third quarter due to a seasonal uptick in churn when compared with second quarter 2008 results." Translation: Sprint is losing more customers in the next three months.
Here's the environment Sprint finds itself: Folks are swapping landlines for wireless phones so you'd think Sprint would benefit. But customer service isn't so hot (and the horror stories are legendary). Customers are defecting to AT&T and Verizon Wireless judging by those respective companies' subscriber additions. Meanwhile, Sprint has cool phones, but it's tough to recover from a poor customer service reputation. Year to date, Sprint has lost 1.85 million post paid subscribers. At the halfway mark last year Sprint lost 204,000.
And how do you recover from this word of mouth marketing:
I have never been happier to be rid of Sprint! Their customer service treats you like you caused your problem, EVERY TIME!
I wonder how many military personnel still use Sprint after the word got out that Sprint was cancelling accounts of frequent roamers (many of which were military). I was one of those who was warned about roaming on my frequent trips out of town... and made very sure that as many colleagues I knew were aware of Sprint's practices!
Some people will wonder out loud whether the worst is over for Sprint because churn improved to 2 percent (still way worse than AT&T and Verizon), but that's a difficult call.
Sprint's best bet is to fix itself quickly and sell out to a company that wants to be bigger, say T-Mobile. Dana Blankenhorn suggests that Google should buy Sprint to save the day. The problem is the longer Sprint takes to fix itself the more its potential value to an acquirer falls. After all, Sprint had 51.9 million subscribers at the end of the quarter, down from 54 million a year ago. No matter what lifetime value you put on a subscriber Sprint is worth less to a buyer than a year ago.
And the biggest question is this: Would the potential acquirer of Sprint be able to stop customers from defecting? That's a big issue and adds to the risk of any Sprint purchase. New CEO Dan Hesse said the company's retention efforts--at least for high value customers--appear to be working and its Instinct handset is promising. But Sprint is spinning when it touts that its churn rate improved to 2 percent in the second quarter from 2.45 percent in the first when its defection rate is still roughly double what Verizon and AT&T deliver.
Is Sprint dead yet? Nope, but the clock is ticking and the company could become a wireless zombie. After all, Sprint is raising $3 billion in a private placement to keep running and pay down debt.
By the numbers:
- Sprint lost 12 cents a share on revenue of $9.1 billion in the second quarter. Adjusted EPS, which excludes the kitchen sink, was 6 cents a share--double Wall Street estimates.
- Sprint had 35.5 million customers on CDMA, 14.6 million on iDEN and 1.7 million users that utilize both networks.
- Wireless capital investments were $393 million in the second quarter, way lower than $918 million in the first quarter $1.4 billion spent a year ago.
Also see: Sprint's inferno: Churn baby churn
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