It certainly has been an interesting four months for Sprint - the "New Sprint." Beginning with the October announcement that it was selling 70 percent of itself to Softbank, to announcing it would acquire all of Clearwire, to looking at the way it will handle subscribers going forward, the company has gone through a lot of changes.
One thing that hasn't yet changed, however, is the company's propensity to lose money - although it looks to be getting just a bit better at holding on to more of it (though not much more of it).
The loss of some of those dollars can be attributed to the fact that the Nextel side of Sprint is being closed down, meaning the loss of 243,000 contract customers, who all now seem to be looking elsewhere for services. Analysts had been expecting subscriber losses of 229,000 but another 14,000 subscribers isn't going to mean much either way.
More importantly and more specifically, Sprint managed to hold on to 51 percent of its Nextel customer base, 6 percentage points better than its own estimate of 45 percent.
The company noted that over the most recent two quarters, the Nextel retention rate has in fact ranged close to 60 percent. Interestingly, Sprint itself claims that it isn't actually able to sustain such a high level of conversion, though we are hard pressed to understand why.
On a more general Sprint-wide scale, Sprint itself netted an overall subscriber gain of 68,000 contract customers on its platform. In total, Nextel shed 644,000 subscribers, while Sprint added 401,000 - hence the 243,000 lost contract subscribers. Sprint notes that overall customer losses will continue until the entire remaining Nextel base of 1.6 million Nextel subscribers are completely off the service and it shuts down (probably in June 2013).
Sprint predicts that it will recapture between 30 and 40 percent of those subscribers in the first half of 2013.
How did all of this affect the numbers? Revenue improved 3.2 percent to $9.01 billion, which just beat estimates. Consensus analyst estimates had Sprint losing $0.46 per share, with total revenue of $8.92 billion. Overall, Sprint reported a net loss of $1.32 billion, or 44 cents a share. This compares with a loss of $767 million, or 26 cents, a year earlier.
On a positive note, Sprint sold 2.2 million iPhones - a significant jump over the previous quarter's 1.5 million units. Apple's own supply chain constraints probably kept that number lower than it could have been. Sprint also noted that new customers accounted for 38 percent of its iPhone sales. In comparison, Verizon Wireless reported 30 percent sales to new customers and AT&T lagged significantly with only 16 percent of iPhone sales going to new customers.
For those of us wondering if Sprint will introduce new pricing plans that include phasing out device subsidies (noted in the article we pointed out above on handling subscribers), Sprint CEO Dan Hesse confirmed that he doesn't expect any changes in the near term, and is taking a wait-and-see position on how T-Mobile fares on this front. Sprint has no plans to increase rates and says it won't do so until it is able to deliver greater 4G-LTE support.
Even then, raising prices on LTE is not a strategy that the U.S. has focused on.
Softbank hasn't detailed its plans for Sprint - which we probably won't hear details on until the deal is actually closed, which will happen in June or July 2013.
Sprint notes that its churn rate - the percentage of customers canceling their contracts - was a relatively high 1.98 percent. That Sprint still hasn't deployed long term evolution (LTE) support on a large enough network scale - as pointed out by Hesse - is the probable underlying cause for the churn rate. Sprint CFO Joseph Euteneuer points out that, "Churn is likely to remain at elevated levels for the next few quarters before we see gradual benefit from our Network Vision deployment."
In the fall, Sprint pushed back its goal of hitting 12,000 overhauled network sites at the end of 2012, but on Thursday reiterated hitting that goal at the end of the first quarter. In all, the carrier’s Network Vision plan refers to Sprint's plan to convert and upgrade approximately 40,000 cell sites to 4G-LTE.
Sprint claims this will allow it to cover 200 million potential subscribers by the end of 2013.
Eutenauer estimates that capital spending will remain elevated in 2013, with 1H 2013 remaining in the range of the $1.9 billion reported for the same period in 2012. Total capital expenditure for 2012 was reported at $5.4 billion.
Obviously, delivering on the Network Vision promise will be vital to Sprint's future - and to Softbank's investment.
It is worth pointing out that Softbank's strategy with its own networks to date has been one of cutting costs and delivering bargain-priced services. Whether or not the low cost strategy approach is the strategy Sprint will pursue once the Softbank deal closes remains to be seen. It will be an interesting poker game for Sprint. Low-cost strategies mean that Sprint will compete with T-Mobile, which ranks beneath it.
Low cost won't cut it against Verizon Wireless and AT&T; Sprint has to deliver amazing services to do that. At ITEXPO Miami 2013 last week, there was a fascinating keynote panel that focused on what service providers need to deliver to effectively stay in the game and not become mere dumb pipes.
With AT&T and Verizon, the poker game becomes the one they play in the high stakes rooms in Las Vegas. It will be interesting to see which game Sprint will ultimately play in.
Edited by Braden Becker