Sprint comeback: Hard, but doable

Despite gloomy news, analysts optimistic on Sprint turnaround

Sprint had a rough year in 2008, but its WiMAX launch and incremental gains in customer service ratings could help its turnaround chances.

2008 was a bad year for Sprint.

The carrier not only posted an annual loss of $2.8 billion, but also lost more than 4 million wireless subscribers and wound up laying off 8,000 workers this past January.

Sprint's competitors, meanwhile, all seemed to extend their advantages over the beleaguered carrier. Buoyed by the release of the iPhone 3G, AT&T added nearly 7 million new wireless subscribers in 2008 while posting earnings of $12.9 billion for the year, a 7.7% increase over its 2007 earnings. Verizon, meanwhile, added 6.3 million new wireless customers while posting a net income of $6.4 billion, a 16.4% increase from 2007.

But despite all the gloomy numbers, Sprint still does have some things going for it. Now that the company has gotten its WiMAX network off the ground with the help of its partners in the Clearwire coalition, for instance, Sprint can offer high-speed mobile broadband services to customers roughly two years before rival carriers start offering 4G Long Term Evolution (LTE) cellular voice and data services. Clearwire plans to aggressively expand its WiMAX coverage this year by spending the $3.2 billion it raised from Google, Intel and other investors last year for the network buildout.

Bar charts showing how Sprint compares to competitors

Robert Rosenberg, president of Insight Research, says Sprint's WiMAX investment could be particularly useful in gaining back some of the local access broadband customers that Sprint lost when it spun off its local division during the Nextel merger in 2005.

"Sprint made a strategic bet with WiMAX technology and what they can do to it," he says. "They're thinking of reinvigorating their local access business for broadband… That access strategy could help them gain more customers for their voice business as well."

The company's WiMAX investment may not go off as smoothly as planned, however, as Clearwire CEO Ben Wolff recently indicated that tight credit markets could hinder the company's ability to raise additional capital for further expansions, thus potentially slowing down its nationwide deployment.

"Sprint wants to be the data leader on the 3G side and the WiMAX side," says Gartner analyst Alex Winogradoff. "The WiMAX investment is a great investment but if you don't build it out, you won't keep your advantage."

But even if the poor economy slows down Sprint's WiMAX rollout, it could also give the company a boost by pushing more subscribers to some of its low-cost wireless plans. In response to the current recession, Sprint last month unveiled a plan that allows users to have unlimited calling, texting and Web use for $50 a month. There is, however, one potential problem: The service is only being offered over the iDEN network, which is slower than the CDMA-based 3G network and has caused Sprint problems since being acquired in 2005. Despite this, IDC analyst Courtney Munroe thinks that if they're marketed well, Sprint's inexpensive wireless plans could become the go-to option for bargain-hunting wireless customers.

"This economy is kind of good for them because people are focusing on value, not the real high-end phones," he says. "People are saying that maybe they should cap their data usage and go to a prepaid plan from a postpaid plan."

Customer service still key

Of course, all of the inexpensive wireless plans and high-speed data networks won't help Sprint in the long run unless the company improves its customer services.

When current CEO Dan Hesse took over the company in December 2007, he placed a particular emphasis on improving customer service, which has been a trouble spot for the company. A survey issued by the University of Michigan's Ross School of Business last year, for instance, found that Sprint ranked dead last among major U.S. wireless carriers in customer satisfaction. Things haven't looked much better this year either, as the company continued to place last in customer care in J.D. Power's latest semi-annual survey of wireless customer service.

If there's one silver lining to Sprint's customer service problems, it's that its churn rate – or the rate at which its customers cancel their service – dropped to 2.15% in 2008, down from 2.23% in 2007. Even more encouraging is that the 2.16% churn rate that the company posted in the fourth quarter of 2008 was down significantly from the 2.29% churn rate that the company reported in the fourth quarter of 2007. Munroe says these lower churn rates may be the first indicators that Sprint is beginning to right itself with how it deals with its customers.

"Now that their market-share erosion is slowing, there must be some validity to the notion that they are incrementally making progress with their customer service," he says.

Even so, a wireless churn rate of 2.16% is nothing to crow about, as both AT&T and Verizon both have churn rates well under 2%. And as Winogradoff notes, Sprint's customer service reputation has taken such a hit that it will be difficult for the company to regain the trust of customers who have left it for another carrier.

"From a customer prospective, they seem to imply that things are going in the right direction, but the question is, 'Are customers soured on the brand?'" he says. "That's going to take a long time to turn around."

And if Sprint is going to turn around its brand name, Rosenberg says, it will have to do it alone. After all, it's highly unlikely that any company will want to shell out money to buy the troubled carrier in the current economic climate of tight credit markets.

"There's always a chance that they'll be acquired, but right now making deals is problematic," Rosenberg says. "If they can keep chipping away at some of the problems they have, there's no reason they can't watch their numbers improve."

Munroe expresses a similar sentiment.

"There are no takers for Sprint in this market," he says. "So they've got to keep plugging away. They're working very hard on these problems, and it could be a good turnaround year for Sprint if everything falls into place."

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