Upcoming Palm Pre release puts Sprint turnaround plan in focus

Sprint's turnaround plan so far has featured three main components: improved customer satisfaction, WiMAX deployment and a smartphone that can go toe-to-toe with the iPhone.

In the latter category, Sprint is hoping that it will finally achieve big-time smartphone success when the Palm Pre is released later this week. Following in the footsteps of the Apple iPhone and the BlackBerry Storm, the Palm Pre will be sold for $200 provided customers sign a two-year service agreement with Sprint and mail in a $100 rebate. During J.P. Morgan’s recent Global Technology, Media and Telecom Conference in Boston, Sprint CEO Dan Hesse talked about how important it has become for carriers to have a flagship device that they can market their network around.

“What the iPhone has shown is that if you really do have a compelling device that is revolutionary … then customers will switch to your service,” he said. “We think the Palm Pre stacks up very well against the iPhone, especially its operating system and the ability it gives you to multitask and to integrate with business and consumer applications.”

During demonstrations of the device, Palm representatives have touted the features of the Pre's operating system, known as the Palm webOS, as a main differentiator from other smartphones. The webOS was designed to make developing applications for the operating system simple, as it is based on familiar Web standards such as CSS, XHTML and Javascript. The idea behind using well-known standards, the company says, is to make it easier for applications to integrate with each other. Additionally, the webOS is layered to allow users to keep several applications open at once and to let them flip between them.

During his talk at the J.P. Morgan conference, Hesse emphasized that Sprint's first priority still has to be improving its reputation for customer service, which has suffered ever since Sprint’s acquisition of Nextel in 2005. The company seemingly hit bottom in 2008, when it lost 4 million wireless customers and hit its lowest-ever customer satisfaction score in the American Customer Satisfaction Index (ACSI), a quarterly study published by the University of Michigan's Ross School of Business.

However, the latest ACSI released last month suggests that Sprint's mission to improve its customer satisfaction could be starting to pay off. Overall, the study found that that Sprint's customer satisfaction rating has surged upward by 12.5% over its customer satisfaction rating last year. And although Sprint’s improvement in customer satisfaction still leaves it last among major U.S. wireless carriers, it does place the carrier within striking distance of AT&T for third place on the survey. The ACSI says that while the improvement in customer satisfaction is good news for Sprint, it also speculates that a good portion of Sprint's higher rating is “probably due to the fact that many dissatisfied customers have defected” to other carriers.

Hesse said Sprint has also detected an improvement in its customer satisfaction, as its own internal numbers have gone up for 15 consecutive months. He cautioned, though, that it could take a long time to rebuild Sprint's reputation for customer service. Hesse likened the company's current situation to that of Japanese car manufacturers when they first tried to penetrate the American market and said that the company's quality was not being reflected in its public perception.

“You have to be patient when you have a brand that took some shots as our company did when it was focusing on integration issues with Nextel back in 2006 and 2007,” said Hesse, who also claimed that “people who've experienced Sprint in the last 12 months have had a favorable experience.”

The final plank of Sprint’s turnaround plan, its mobile WiMAX data services, will come more into the spotlight later in the year, when the company launches services in Atlanta, Charlotte, Chicago, Dallas, Fort Worth, Honolulu, Las Vegas, Philadelphia, Portland and Seattle. For 2010, Sprint plans to spread its WiMAX offerings to Boston, Houston, New York, San Francisco and Washington, D.C.

The key for Sprint over the next year will be to aggressively market its WiMAX offerings before Verizon comes to market with its 4G Long Term Evolution (LTE) services. Sprint's WiMAX division – which is now calling itself Sprint 4G – currently offers the fastest mobile broadband services on the market, offering peak downlink speeds of 12Mbps and average downlink speeds between 2Mbps and 4Mbps. For comparison, AT&T’s 3G network is now undergoing an upgrade that it says will give users peak downlink speeds of 7.2Mbps by the end of the year. Once Sprint’s WiMAX division launches more broadly throughout the country, it will have at least a year or so as the fastest mobile data service before Verizon’s LTE launches commercially.

In the meantime, Sprint hopes that it can continue the success it has had during the recession in aggressively promoting low-cost prepaid wireless plans that have partially offset its postpaid wireless subscriber losses. In the first quarter of 2009, for instance, the carrier added 674,000 prepaid subscribers, which helped take the sting out of the 1.25 million postpaid customers who left the carrier over the same period.

Prepaid plans often prove attractive to consumers during a recession because they are less expensive than traditional postpaid wireless plans. However, prepaid plans also generate less money per subscriber than postpaid plans. In this past quarter, for instance, Sprint generated $56 in average revenue per user (ARPU) for its postpaid plans and $31 in ARPU for its prepaid plans. Hesse alluded to his company’s success in prepaid services during his talk at J.P. Morgan and said that bringing customers in for non-contract low-rate services would not be enough to help the company turn around.

“One area we need to turn around is the decline in postpaid subscribers,” he said. “Our problem is that we're not bringing in new customers and that's largely a brand issue.”

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