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Nextel network closure triggered bigger-than-expected subscriber, fiscal loss

Japan's SoftBank Corp. (TYO:9984) definitely bought a "fixer-upper" in Sprint Nextel Corp. (S).

In Q2 2013, Sprint was the only major U.S. carrier to lose subscribers. Verizon Wireless scored 941,000 new monthly subscribers, AT&T, Inc. (T) tacked on 551,000, and Deutsche Telekom AG's (ETR:DTE) T-Mobile USA brand saw its first growth in three years, tacking on a modest 3,000 customers.

Sprint, meanwhile, shed 1.05 million subscribers during Q2. This was even worse than an analyst expectation of 872,000 defections, the consensus of the ten analysts surveyed by Bloomberg.

Financials also were full of misses.  Sprint saw a net loss of $1.6B USD ($0.53 USD/share), versus an analyst expectation of $936M USD ($0.31 USD/share).  The lone signs of hope lay in revenue; Sprint reported average (monthly) revenue per user (ARPU) of $64.20 USD. This was up nearly a dollar from a year before, and handily beat the Bloomberg analyst estimate of $63.69 USD.  As a result, Sprint's revenue of $8.88B USD, also broke through analysts' $8.73B USD target.

A key driver of Sprint's customers and fiscal launches, was the final shuttering of the decrepit Nextel network.  Sprint did manage to "recapture" 4 million Nextel subscribers, a 44 percent recovery rate.

Sprint Nextel
Sprint and Nextel : Not together anymore. [Image Source: Bloomberg]

The good news for Sprint is that it now has a lot of spectrum thanks to the closure of Nextel and purchase of ClearWire.  And it has fresh leadership thanks to its new owner SoftBank.

By contrast SoftBank, who paid $21.6B USD for a 78 percent stake in the third-place U.S. carrier, pulled in ¥238.3B ($2.4B USD) in profit, after adding 810,500 net subscribers -- the most of any Japanese carrier.  That profit beat analyst expectations of ¥198B ($2.0B USD).

The Japanese carrier expects to save $2B USD annually by pooling equipment purchases with Sprint to get a "bulk discount" of sorts.  Those savings are expected to offset Sprint's losses during the recovery effort.  SoftBank CEO Masayoshi Son remarks, "I expect Sprint would make a V-shaped recovery at an early stage."
Sprint and Softbank
Softbank CEO Masayoshi Son (left) and Sprint CEO Dan Hesse [Image Source: Kyoto Newscom]

Sprint ended the quarter with approximately 55 million subscribers, compared to 34 million for T-Mobile USA.  Sprint is aiming to aggressively roll out its 4G LTE network, with the help of a $5B USD cash injection from SoftBank.

In terms of marketing Sprint remains the only carrier who does not throttle or charge users after hitting a connection cap.  (T-Mobile slows the connection, but does not charge extra, while Verizon and AT&T charge overages).  However, T-Mobile USA stole much of the spotlight with its affordable "JUMP" program, which allows you to upgrade your smartphone every 6 months for a modest fee.  AT&T and Verizon have since followed in suit with similar (if a bit less attractive) programs, leaving Sprint the odd man out.

Sources: Sprint, Bloomberg

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There food in the trough is limited.
By drycrust3 on 7/30/2013 1:06:54 PM , Rating: 2
In terms of marketing Sprint remains the only carrier who does not throttle or charge users after hitting a connection cap.

In Q2 2013, Sprint was the only major U.S. carrier to lose subscribers.

There is a link here, and it may not be obvious. The fact is costs have to be paid for, that those that hog the service create more costs than those that are average and light users, yet the sum of your network costs have to be paid for by only your paying customers.
The fact that Sprint is loosing customers says one thing: The service isn't worth the price. This isn't a good, because every customer that leaves who is a light or average user is a profitable customer for a competitor.
What having "all you can eat" does is benefit those who hog the most, and places the cost burden of them onto the rest of the paying customers.
The paying customers are your only source of income, so your pricing should encourage the average and light users to stay, while discouraging the heaviest users to continue hogging. The two obvious ways to discourage the hogging are to either charge them more (thus they see a relationship between their behaviour and the cost they create) or by limiting the service they get (thus, even if they don't see a link between their behaviour and the costs they create, the damage they do is limited).
Obviously caps and throttles are unpopular, especially with the hogs, but the reason they are there is because every paying customer should contribute to the companies profit, and the hogs are the ones who should contribute the most because they need the service, not the light users.
Light users shouldn't feel they are being fleeced, average customer should feel they get their money's worth, and hogs should feel they are being fleeced when they hog.
When a hog that is being subsidised leaves, the company profit goes up.
Sprint saw a net loss of $1.6B USD ($0.53 USD/share)

Not surprising really.

RE: There food in the trough is limited.
By rountad on 7/30/2013 6:30:27 PM , Rating: 2
I notice a lot more dropped calls when I am calling Sprint subscribers. As in, I cannot talk more than a few minutes without a drop. When I call users of Verizon and AT&T, this doesn't happen.

Maybe they don't like all the dropped calls...

RE: There food in the trough is limited.
By Samus on 7/31/2013 12:39:29 AM , Rating: 3
Interesting. I drive home through downtown Chicago traffic daily while talking to my wife for 10-20 minutes handsfree and rarely (as in twice a year) drop a call. This is a peak hour for all cell networks (rush hour) and I drive under at least a dozen bridges with diesel locomotives over them, between hundreds of skyscrapers and a lake to the East of me (where there are obviously no cell towers.)

I understand Sprint has an excellent 4G (LTE and WiMax) network here in Chicago, but its been that good for years since I had EVDO/PCS Vision in 2003.

On the other side of the coin, I had US Cellular from 2005-2009, which was equally excellent (just too expensive) and T-mobile for a stint in 2010, which was a terrible mistake. I couldn't hold a call for more than 5 minutes while driving because of a well known T-mobile GSM flaw with tower-transitioning.

With T-mobile, I also had the well known "out-of-service death" (OOSD) where if you are out of service too long, the radio sleeps to save power, and forgets to wake up. The flaw is once you enter service area again, the radio never wakes up, but the phone shows signal anyway making you think your in service. Of course after rebooting your phone (or entering/exiting airplane mode) the phone shows a plethora of voicemail, delayed SMS's, and pissed off wife.

In Chicago, I can safely say Verizon, US Cellular and Sprint, ALL CDMA carriers, are far superior to T-mobile and AT&T. I've never met a single person here who is actually satisfied with a GSM carrier. Which is too bad, because SIM cards are convenient, and the phone selection is better.

By bigboxes on 7/31/2013 11:55:19 AM , Rating: 2
Finally, a rational post.

RE: There food in the trough is limited.
By HrilL on 7/31/2013 4:55:31 PM , Rating: 2
Your logic on costs is flawed. I run corporate networks and your cost is fixed in most cases. You buy a connection. Say 1Gbps if you only consume 50% of the bandwidth it will cost you the same as it would if you use 100%.

Sprint is a National ISP. They have their own backbones and thus are not buying bandwidth. They will have peering agreements for cross connections. Thus their costs would be related to hardware upkeep. Those costs don't change much based on usage. While adding new hardware to meet demand would be your only added cost past the basic maintenance costs.

The Data hog argument you are trying to use has already been debunked. It only comes into effect when networks are fully congested. 80% of the time the networks won't be. So having a data cap on users doesn't actually solve anything. It is a money grab and nothing more. If it was really about network congestion then the heavy users would only be throttled during congestion and not all the time like the carriers are currently doing for Unlimited plan users that go over an arbitrary cap (minus Sprint).

The Simple fact is that these so called data hog you mention are not costing anyone more. Att and Verizon make an extra profit off heavy users by charging them more.

By drycrust3 on 8/2/2013 3:19:03 PM , Rating: 2
Att and Verizon make an extra profit off heavy users by charging them more.

AT&T and Verizon also have superior customer service.

ALL you Sprint haters-
By Dr of crap on 7/30/2013 12:39:46 PM , Rating: 1
I still get UNLIMITED everything. The coverage, for me, is still great. And I have no use for a plan to upgrade my phone, and pay FULL price every 6 months. THAT is a waste of money. I'll keep my phone for the 2 year period and then upgrade.

ALL those new plans, that T and the others have come out with, not impressed.

RE: ALL you Sprint haters-
By Shig on 7/30/2013 1:10:22 PM , Rating: 2
Agreed. Your phone might as well be garbage if your internet connection isn't unlimited.

Excluding Nextel...
By DanNeely on 7/30/2013 2:22:39 PM , Rating: 2
... it looks like they gained ~3M customers. Their net loss was about 1M; but they only kept ~4 of 8M residual Nextel customers when they pulled the plug.

Since the Nextel diehards rage quitting when iDEN was finally axed was a onetime hit, Sprint's overall customer status looks rather good. And since Nextel's been bleeding money for years Sprint's bottom line should benefit as well.

fudge lovers
By Shadowmaster625 on 7/30/13, Rating: -1
RE: fudge lovers
By Mitch101 on 7/30/2013 11:29:06 AM , Rating: 2
I moved the wife over to StraightTalk same lousy sprint service but only $45.00 a month. Shes not into data and there is free wifi in most places so its not a missed item because it never worked well to begin with.

By Mitch101 on 7/30/13, Rating: -1
RE: Hmmmmm
By retrospooty on 7/30/2013 11:34:48 AM , Rating: 2
"Android Lost 1.1% market share in the US while Windows phone gained 1.1% These are apparently not the droids people are looking for."

Nice spinjob MSTony ;) Why dont you tell the whole story though.

"Android still provides over half of U.S. sales -- 51.5 percent, to be exact -- though that figure is down slightly from the 52.0 percent in Kantar's prior report. iOS rose slightly from 41.9 percent to 42.5 percent. Windows Phone saw a nice rise year-over-year, to 4.0 p"

Furthermore, when you ignore "just USA" and look at the whole world, Android is well over 70% ... So, they are apparently the droids people are looking for :P

RE: Hmmmmm
By Mitch101 on 7/30/2013 12:59:21 PM , Rating: 2
Oh I made Mini Reclaimer upset.

Just returning the favor you all did when you fanbois were posting these US only when Windows Phone wasnt or just started selling on all carriers then boasted how Windows Phone was somehow failing. Pretty hard to gain market share when it wasnt selling on the two biggest carriers but you guys loved to talk smack.

Now that Windows Phone is starting to sell on all Carriers its growing as expected and I did mention global to be fair.

This time next year we will start to see Android smartphones decline globally. Then they will pull an Apple lumping it all into OS sales to keep the numbers inflated.

RE: Hmmmmm
By retrospooty on 7/30/2013 4:41:48 PM , Rating: 2
"Now that Windows Phone is starting to sell on all Carriers its growing as expected and I did mention global to be fair. This time next year we will start to see Android smartphones decline globally."

Riiiiight... And you dont think you are adding just a BIT of wishful thinking in there? Call me when they break 10%, USA or World. Until then, its about as irrelevant as Blackberries are.

Again, I like WP8, its a pretty god OS, its just that people arent buying it... No compelling reason to make a switch. It doesnt do anything that IOS and Android already do and do very well.

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