Despite adding customers, Sprint still on shaky ground

ARPU down, postpaid subs still falling

It's obviously better for Sprint to gain customers than lose them, but the company's latest customer increases still don't show the company operating from a position of strength.

Can Sprint afford a WiMAX flop?

In its second-quarter earnings report released Wednesday, Sprint announced that it added 111,000 net subscribers to its rolls, the first net addition of subscribers for the carrier in three years. However, this growth was driven by additions to its prepaid subscriber rolls (173,000 net gain) and its wholesale subscriber rolls (166,000 net gain). Sprint continued to shed postpaid subscribers, losing a total of 228,000 in the second quarter.

This is important for Sprint because postpaid subscribers typically deliver average revenue per user (ARPU) nearly two times as large as prepaid subscribers. In 2Q 2010, for instance, Sprint's postpaid customers produced an ARPU of $55 while its prepaid subscribers produced an ARPU of just $28.

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It's obviously better for Sprint to gain customers than lose them, but the company's latest customer increases still don't show the company operating from a position of strength.

Can Sprint afford a WiMAX flop?

In its second-quarter earnings report released Wednesday, Sprint announced that it added 111,000 net subscribers to its rolls, the first net addition of subscribers for the carrier in three years. However, this growth was driven by additions to its prepaid subscriber rolls (173,000 net gain) and its wholesale subscriber rolls (166,000 net gain). Sprint continued to shed postpaid subscribers, losing a total of 228,000 in the second quarter.

This is important for Sprint because postpaid subscribers typically deliver average revenue per user (ARPU) nearly two times as large as prepaid subscribers. In 2Q 2010, for instance, Sprint's postpaid customers produced an ARPU of $55 while its prepaid subscribers produced an ARPU of just $28.

There is also much less stability in prepaid subscriber rolls, since prepaid churn rates typically more than double those of postpaid churn rates. In other words, if Sprint wants to get strong, reliable sources of revenue, it's going to have to start growing its postpaid customer base again.

What's more, it looks as though Sprint's surge in prepaid customer additions may be slowing down. The company has worked hard to boost prepaid subscribers during the recession, highlighted by its purchase last year of Virgin Mobile USA, a subsidiary of the UK-based entertainment and communications giant that has more than 5 million prepaid wireless subscribers in the United States. But Sprint's prepaid subscriber additions slowed down to 173,000 down from 348,000 in the previous quarter and from 777,000 in Q2 2009. The company has more than doubled its total number of prepaid subscribers over the past year and its 11.2 million prepaid subscribers now represent just under a quarter of its 48.2 million total wireless subscribers.

This doesn't mean there's no good news for Sprint, though. The company's loss of 228,000 postpaid subscribers for the quarter marks a significant improvement from the 991,000 postpaid subscribers the company lost in Q2 2009, and its postpaid churn has dropped in that time from 2.05% in Q2 2009 to 1.85% in Q2 2010.

The fact that Sprint added wireless subscriptions at all comes as a relief to a company that has lost more than 5 million wireless subscribers over the past three years. At its lowest point in the third quarter of 2008, Sprint lost a whopping 1.3 million wireless subscribers, and for all of 2008 Sprint lost more than 4 million wireless subscribers.

The slowdown in Sprint's postpaid subscriber losses coincides with a rebound in Sprint customer satisfaction, according to the American Customer Satisfaction Index published this past spring. Sprint this year surged forward to its highest score in the survey's history, just two years removed from scoring its lowest-ever rating on the index. The ACSI, which is published quarterly by the University of Michigan's Ross School of Business, finds that Sprint's wireless service customer satisfaction ratings have risen to an all-time high score of 70 on a 100-point scale. In 2008, Sprint's customer satisfaction rating had crashed to a score of 56, making it far and away the lowest-rated carrier in the United States.