Is Sprint Finally Turning Its Business Around?

"Assuming it can execute on its current plans, the worst is behind it," says Yankee Group analyst Carl Howe.

Sprint is winning back consumers the old-fashioned way: with hard-nosed cost management, good customer service, and simpler and cheaper services, says Howe, despite a tough period since about 2005 when the Nextel deal and then operational issues caused huge customer defections.

Sprint Nextel’s annualized customer churn rate in the first quarter of 2008 was 38.2 percent, one of the highest in the wireless industry, and a disproportionate share of those losses came from the Nextel portion of the customer base.

In the first quarter of 2008, in fact,  Sprint posted a $29.7 billion write-down of the $36 billion it paid for Nextel. It isn't clear what might have happened had Sprint not purchased Nextel, but it seems clear now that it was a mistake.

But Sprint has been clawing its way out of a hole for the past few years. Annual churn is down to about 33 percent, which is higher than Sprint probably wishes it were, but is a vast improvement.

Based on our North America Mobile Carrier Monitor, annualized customer churn at Sprint has fallen to just over 33 percent.

And though some might view the segment as unappetizing, Sprint has focused much of its marketing efforts on prepaid plans, the fastest growing segment of the mobile phone market.

Sprint has improved its customer satisfaction significantly since 2008 as well. Howe says the average satisfaction of Sprint customers is 7.3, just slightly higher than the industry average of 7.2, and higher than AT&T according to the May 2010 American Customer Satisfaction Index.

While not yet profitable again, Sprint has been slowly and steadily improving its financial performance.

And while some might scoff at the model, Sprint also is restructuring its business as wireless providers in some other markets (India and Europe) also have done, focusing on marketing and outsourcing technical elements of the business.

Basically, Sprint is trying to externalize all functions non-core to service differentiation, customer acquisition and retention. It has spun off network operations management, though not ownership, to Ericsson AB.

That agreement moved 6,000 Sprint employees to Ericsson, while reducing Sprint’s operational expense.

Spirnt also is sharing mobile infrastructure. In 2008, Sprint sold off more than 3,000 of its mobile towers to TowerCo and agreed to lease these towers back for its operations. By leasing instead of owning the towers, Sprint was able to free up capital.

The operator also has roaming agreements with Verizon, giving Sprint the flexibility to exchange operational cost for coverage when it doesn’t feel capital expenditures for coverage are warranted.

While Verizon and AT&T are swapping maps and million-dollar advertising budgets fighting to capture postpaid customers, Sprint has no fewer than four brands focusing on prepaid subscribers: Assurance for government-subsidized plans, Common Cents for Walmart shoppers, Boost for voice-focused consumers, and Virgin Mobile for data-oriented young consumers.

With the postpaid wireless market saturated and prepaid plans now accounting for the majority of growth in wireless, Sprint is focused on serving customers that the other carriers aren’t.

Sprint also was first out of the gate with a fourth-generation network, though some might now say it faces a switch of air interface again from WiMAX to Long Term Evolution.

It is not completely clear whether consumers will see WiMAX, Wi-Fi features Sprint is emphasizing and its approach to retail pricing as the differentiators Sprint hopes they will be, but there is no question Sprint is trying.

Any consumer considering a higher-end smartphone purchase these days probably will find Sprint's approach a lot easier to understand, as users now must decide how many voice minutes they want, how many text messages they need, whether they want or need multimedia messaging service, which data plan is best, and so forth. It simply is more complicated to buy a device and service today, than it used to be.
Sprint is trying pretty hard to simplify all of that.

Yankee Group believes that it will rebound this year more strongly than its competitors might think, says Howe.