Which Way for Sprint?

Sprint’s “Cut Your Bill in Half” marketing campaign is getting attention. Whether it also is getting a commensurate rate of conversions is an important issue.

Of total Compete panel traffic to Sprint’s site in December 2014, 13 percent of visitors also viewed the “Cut Your Bill in Half” pages.

The visits did not necessarily immediately translate into Verizon and AT&T customers making a switch of provider.

Of all visitors to Sprint’s domain in December, only four percent started the process to become a Sprint customer by taking steps to upload their bill on the website. On the other hand, Millward Brown Digital suggests, making such a switch might be complex enough that many wanted to visit a retail store to complete a transaction.

Nor does it appear that the potential switchers are lower income, highly price conscious consumers. The analysis by Millward Brown Digital suggests more than 50 percent of AT&T and Verizon customers who visited Sprint’s “Cut Your Bill in Half Event!” page had an annual income over $60,000, with 22 percent of those customers earning $100,000 or more annually.

The suggestion is that people checking out the promotion might include some of the better customers Verizon and AT&T want to retain. That is a positive.

To be sure, some question whether Sprint strategy can work. Among the doubters is BTIG Research analyst Walter Piecyk. “We do not see a path by which Sprint can return to revenue growth, let alone EBITDA growth or positive free cash flow,” Piecyk said.

As one example, Verizon's mobile operating margin in recent quarters has been  24 percent. AT&T mobile operating margin was 17 percent. Sprint's operating margin was a negative 7.6 percent.

Sprint is doing better in terms of subscriber acquisition. But T-Mobile US, with its own market attack,  is likely taking big chunks out of Sprint's subscriber base.

For 2014, T-Mobile had a porting ratio of 2.2 versus Sprint, meaning for every subscriber that left T-Mobile US for Sprint, 2.2 subscribers left Sprint for T-Mobile US.

Against AT&T and Verizon, T-Mobile US has a porting ratio of 1.8 and 1.4 respectively.

Sprint lost over two million postpaid handset subscribers and T-Mobile US gained four million postpaid handset subscribers in 2014. In other words, the net swing between Sprint and T-Mobile is about six million.

Still, optimists argue that recent network upgrades, including 9,000 Long Term Evolution sites, plus the aggressive retail pricing cutting, plus some evidence its network coverage and quality  are starting to be seen, will allow Sprint to start adding net subscribers.

Also, Sprint CEO Marcelo Claure recently purchased five million Sprint shares, suggesting Claure, at least, sees equity price upside.