Global Insight Perspective | |
Significance | Sprint has launched its challenge to the US$100 unlimited voice package by bundling all services for the same price. |
Implications | Releasing annual results on the same day, Sprint's position is clear as it struggles to maintain its post-paid subscriber base. |
Outlook | While the CDMA network appears to be maintaining customers, the iDEN network continues to atrophy. It remains unclear if there is much Sprint can do to remedy this situation, with dual-mode failing to take up the slack in the key high-spending segment. The massive write-down in goodwill reflects this pessimism. |
Sprint has announced its fourth quarter and full-year results for 2007, with wireless revenues recording a 6% loss. Following competitors' announcements of unlimited voice services for US$100 per month, Sprint has upped the stakes with a "Simply Everything" package (see United States: 20 February 2008: AT&T and T-Mobile Meet Verizon's Unlimited Call Offer). Sprint has gone all in to offer unlimited voice, data, text, email, web-surfing, Sprint TV(SM), Sprint Music, GPS Navigation, Direct Connect, and Group Connect for US$99.99 a month. Subscribers to family packages receive further discounts, with an incremental US$5 discount for each line up to five lines on the same bill. Two lines would amount to US$194.98 (US$99.99 + US$94.99). while a third line would cost an additional US$89.99. Various reports indicate that an unlimited voice and text option is available for US$89.99, but Global Insight has been unable to confirm this directly. Existing Sprint customers can switch to the Simply Everything plan without extending their current contract, while new line activations require a two-year agreement.
Chief executive Dan Hesse has stated that nationally accepted measures of voice quality now show very little, if any, difference among the top wireless providers, Reuters reports. "All major carriers have good voice networks … our network is about more than voice and more than just being the largest wireless data network. It is about allowing customers to connect with people, information and entertainment. It is about simplicity, usability and real value. The US$99.99 Simply Everything plan eliminates coverage surprises and provides a worry-free environment. Our investments in innovation and speed are becoming the new areas of differentiation. These are the areas where we perform best and where we can deliver a wireless advantage for our customers," Reuters reports. This approach marks a change in perception of the value added by new services, which have become subscriber enticements rather than incremental revenue sources for the carrier.
Sprint also announced its full results for the fourth quarter of 2007, which some might point out belie Hesse's assertion that all networks are equal, although of course it may be that he is referring to in-call voice quality rather than issues of coverage, consistency and customer service, which have been attributed to Sprint's ongoing problems.
Sprint Operating Statistics | |||||
Q4 2006 | Q4 2007 | Annual 2006 | Annual 2007 | Growth Q4-Q4 | |
Direct Post-Paid Subscribers | |||||
Service revenue (US$ mil.) | 7,588 | 7,175 | 29,675 | 29,454 | -5.44% |
ARPU | 61 | 58 | 61 | 59 | -4.92% |
Churn | 2.3 | 2.30% | 2.30% | 2.20% | |
Additions ('000) | 306 | -683 | 279 | -1,224 | |
End of Period Subscribers ('000) | 41805 | 40,751 | -1,224 | -2.52% | |
Direct Pre-paid Subscribers | |||||
Service Revenue (US$ mil.) | 371 | 378 | 1,384 | 1,590 | 1.89% |
ARPU | 32 | 28 | 33 | 30 | -12.50% |
Churn | 6.5 | 7.50% | 6.20% | 6.80% | |
Additions ('000) | 171 | 55 | 1,387 | 566 | |
End of Period Subscribers ('000) | 4012 | 4,578 | 4,578 | 14.11% | |
Wholesale Subscribers | |||||
Additions ('000) | 830 | 500 | 1,204 | 1,316 | -39.76% |
End of Period Subscribers ('000) | 6358 | 7,674 | 7,674 | 20.70% | |
Affiliate Subscribers | |||||
Additions ('000) | 46 | 20 | 146 | 115 | -56.52% |
End of Period Subscribers ('000) | 899 | 844 | 844 | -6.12% | |
Total Subscribers |
| ||||
Additions ('000) | 741 | -108 | 3,016 | 733 | -114.57% |
End of Period Subscribers ('000) | 53074 | 53,847 | 1.46% | ||
Consolidated fourth-quarter revenues fell by almost 6% to US$9.8 billion, while full-year revenues fell by just over 2% to US$40.1 billion. In the wireless segment, fourth-quarter revenues of US$8.5 billion were down by 2% on the prior quarter and 6% y/y. Full-year revenues of US$34.7 billion were down by 1% on 2006. Adjusted operating income of US$168 million for the fourth quarter was down from US$514 million in the third quarter and US$652 in the fourth quarter of 2006. Sprint also operates a backbone network and generates additional revenues through wholesale operations. Wireline revenues for the fourth quarter were US$1.6 billion, down by 1% y/y, and US$6.5 billion for the year, down by 0.1 billion y/y, generating US$178 million in operating income, up from US$116 million in the previous year, also benefiting from 'a patent license agreement'—the deal with Vonage that Sprint hopes to replicate (see United States: 25 January 2008: Sprint Joins Move to Cast VoIP Patent Net Wider).
Outlook and Implications
These ongoing issues led to the massive goodwill impairment charge of US$29.7 billion recorded in the fourth quarter, substantially all of the value of the Nextel buyout (see United States: 1 February 2008: Sprint Writes Down Goodwill and 16 December 2004: Sprint and Nextel Agree to Merger). Hesse has portrayed a pessimistic outlook for the company: "To be frank, the issues we face are more difficult than what I expected to find … it takes hard work and time to regain a reputation." Hesse has halted dividend payments and stock re-purchases while the company adjusts operations, and notes that he expects heavy post-paid subscriber losses to continue—up to as much as 1.2 million in the first and second quarters.
Sprint began losing post-paid customers in the first quarter of 2007, a trend that has largely continued through the year. Low-value wholesale and pre-paid customers account for an increasing portion of the subscriber base. The total size of the subscriber base has actually shrunk for the last two quarters—losing 60,000 subscribers in the third and 108,000 in the fourth quarters, while competitors record growth rates of between 11.27% and 14.9%.
Total Subscribers Q4 2007 | |||||
Q4 2006 | Q3 2007 | Q4 2007 | Growth q/q | Growth y/y | |
AT&T | 60,962 | 65,666 | 70,052 | 6.68% | 14.91% |
Verizon | 59,052 | 63,699 | 65,707 | 3.15% | 11.27% |
Sprint | 53,074 | 53,955 | 53,847 | -0.20% | 1.46% |
T-Mobile | 25,041 | 27,734 | 28,700 | 3.48% | 14.61% |
198,129 | 211,054 | 218,306 | 10.18% | ||
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Through the acquisition of Nextel, Sprint operates two networks: iDen and CDMA. Sprint stopped releasing a detailed breakdown of the subscriber base by technology in the second quarter of 2007, but the trend showed that the Nextel subscriber base was the source of post-paid subscriber losses. Sprint reports that this is still the situation, with 35 million subscribers now on the CDMA platform, up from 31.5 million a year previously (including wholesale and affiliates—Sprint has largely bought out former Nextel affiliates), 17.3 million on iDEN, down from 21.6 million a year ago, and 1.4 million dual-mode 'Powersource' customers since its introduction in early 2007 (see United States: 14 June 2007: Sprint Buys Affiliate Northern PCS for US$312.5 mil.). Hesse has confirmed the company's commitment to iDEN, but the question remains whether the market really needs the service as IP-based solutions (including email) have evolved and Sprint plans its own replacement for the networks key feature—push-to-talk (see United States: 31 January 2008: CEO Confirms Sprint's Commitment to PTT over iDENand 18 October 2007: Sprint Sees QChat on Course for 2008). Motorola have upped the viability of iDEN, launching dual-mode handsets for consumers (Powersource). It has also enhanced viability for public safety users by recently releasing a suitable dual-mode handset and, with the auction of 700 MHz spectrum under a private-public partnership having failed, the old rumours of a sale of the iDEN network to the government may gain more life (see United States: 13 February 2008: Motorola Hands Sprint Interoperability for iDEN and Mobile Radio). If it was ever on the cards, such a move would be more politically difficult in these conditions with the likelihood that it would receive criticism as a state-funded rescue package.
While shuttering the iDEN network in the near future looks to be out, Hesse has noted that he will streamline operations, including consolidating headquarters, as he attempts to re-balance operations (see United States: 21 January 2008: Subscriber Losses Continue for Sprint in Q4, Streamlining Planned; ;14 February 2008: Sprint Consolidates in State of Kansas; and 15 January 2007: Sprint Plans Downsizing—Reports). While this is necessary, it could easily impact negatively on customer service issues at the core of Sprint's problems. Plans to launch a WiMAX network will also require heavy examination and a deal to reduce costs is highly likely, but the launch of the advanced IP-based network may be seen as the one possible source of recovery for Sprint's battered reputation (see United States: 30 January 2008: Sprint and Clearwire Back in Talks—Reports).