Is Sprint On The Road To Recovery?

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Aug 29, 2014

There has been a continuous war between the four major players in the wireless carrier industry in the U.S. Each player is trying to attract customers by offering new plans and offers to customers. The third largest wireless carrier in U.S., Sprint (S, Financial), reported its first quarter results recently. Although the company had been suffering from a long time, it managed to beat analysts’ expectations. This led to a sharp rise in its share price. Let us dig in further.

Getting into the details

Though the top line dropped slightly to $8.8 billion, over last year, it managed to beat the Street’s estimate of $8.7 billion. Also, its earnings improved to a profit of $0.01 per share, from a loss of $0.53 per share, in the prior year’s quarter. These numbers are definitely a relief to investors since the company had been undergoing a difficult phase wherein slow network connection was making people switch to other networks.

Sprint’s network overhaul enabled the company to upgrade it so as to speed up its services. However, the revamp took time and is on the verge of completion; the wireless carrier continues to lose customers to its competitors. In fact, it lost 181,000 customers during the quarter. But this was again better than the expectation of 293,000 customers. Also, a shutdown of its older network, called Nextel, has led to customer declines.

Nonetheless, the company did make a number of efforts to attract customers. For instance, it slashed prices of its services and introduced various offers. Also, it offered customer guarantees so it can offset the loss of subscribers.

As against the peers

On the other hand, the rest of the three players of the industry, namely T-Mobile (TMUS, Financial), AT&T (T, Financial) and Verizon Communications (VZ, Financial), are posting gains in the number of customers. In the last one year, T-Mobile added 3.3 million customers, whereas Sprint lost 2.5 million post-paid subscribers. Even AT&T and Verizon posted an increase of 2.4 million and 4.7 million customers, respectively.

Even in the last reported quarter, AT&T added 1 million customers as it introduced its Next plan, which offers mobile financing and instant upgrades to customers. In fact, T-Mobile was the first one to introduce this plan and was followed by other players. Even Verizon introduced a similar plan called “More Everything.” These initiatives by the leading wireless carriers have posed a major threat to Sprint’s existence.

Also, churn rate, customer defection rate, has been a matter of concern for Sprint. Its churn rate increased to 2.05% from 1.83% in the previous year. On the other hand, Verizon registered a decline in its churn rate.

Road to recovery?

However, Sprint has undertaken a number of initiatives to overcome the prevailing competition. First, it has been testing new price plans so that it can lure customers, especially the ones who are price sensitive. Also, its network upgrade is about to be completed and is expected to provide faster service to customers.

Further, it plans to launch new customizable plans on its Virgin Mobile brand. The plans will be of low cost and will allow customers to add any special offers, as per their needs and use.

Also, Sprint is in talks to acquire T-Mobile in the latter half of the year. Although it has not been approved yet, if the buyout is successful Sprint will have a better competitive edge over AT&T and Verizon.

Summary

It is quite clear that Sprint has been undergoing a difficult situation. Problems related to network overhaul and stiff competition from other industry players have been some of the key hindrances to the company’s growth. However, it managed to perform better than what people had expected. Moreover, its efforts for a brighter future look interesting. I think one should stay on the sidelines and wait for the right opportunity to get into the company.