Can Sprint Convince Customers to Stay?

Sprint (S) had some good news Wednesday: The wireless provider lost 901,000 net customers and only 776,000 post-paid subscribers in the second quarter. Wall Street was expecting more customer defections. For instance, Morgan Stanley was expecting post-paid subscriber losses of 947,000. But let’s get real here: Sprint is on the ropes and customer service woes render the company an afterthought.

In fact Sprint said in a statement that it “currently expects to report higher post-paid subscriber losses in the third quarter due to a seasonal uptick in churn when compared with second quarter 2008 results.” Translation: Sprint is losing more customers in the next three months.

Here’s the environment Sprint finds itself: Folks are swapping landlines for wireless phones so you’d think Sprint would benefit. But customer service isn’t so hot (and the horror stories are legendary). Customers are defecting to AT&T and Verizon Wireless judging by those respective companies’ subscriber additions. Meanwhile, Sprint has cool phones, but it’s tough to recover from a poor customer service reputation. Year to date, Sprint has lost 1.85 million post paid subscribers. At the halfway mark last year Sprint lost 204,000.

And how do you recover from this word of mouth marketing:

I have never been happier to be rid of Sprint! Their customer service treats you like you caused your problem, EVERY TIME!

I wonder how many military personnel still use Sprint after the word got out that Sprint was cancelling accounts of frequent roamers (many of which were military). I was one of those who was warned about roaming on my frequent trips out of town… and made very sure that as many colleagues I knew were aware of Sprint’s practices!

Some people will wonder out loud whether the worst is over for Sprint because churn improved to 2 percent (still way worse than AT&T and Verizon), but that’s a difficult call.

Sprint’s best bet is to fix itself quickly and sell out to a company that wants to be bigger, say T-Mobile. Dana Blankenhorn suggests that Google should buy Sprint to save the day. The problem is the longer Sprint takes to fix itself the more its potential value to an acquirer falls. After all, Sprint had 51.9 million subscribers at the end of the quarter, down from 54 million a year ago. No matter what lifetime value you put on a subscriber Sprint is worth less to a buyer than a year ago.

And the biggest question is this: Would the potential acquirer of Sprint be able to stop customers from defecting? That’s a big issue and adds to the risk of any Sprint purchase. New CEO Dan Hesse said the company’s retention efforts–at least for high value customers–appear to be working and its Instinct handset is promising. But Sprint is spinning when it touts that its churn rate improved to 2 percent in the second quarter from 2.45 percent in the first when its defection rate is still roughly double what Verizon and AT&T deliver.

Is Sprint dead yet? Nope, but the clock is ticking and the company could become a wireless zombie. After all, Sprint is raising $3 billion in a private placement to keep running and pay down debt.

By the numbers:

• Sprint lost 12 cents a share on revenue of $9.1 billion in the second quarter. Adjusted EPS, which excludes the kitchen sink, was 6 cents a share–double Wall Street estimates.
• Sprint had 35.5 million customers on CDMA, 14.6 million on iDEN and 1.7 million users that utilize both networks.
• Wireless capital investments were $393 million in the second quarter, way lower than $918 million in the first quarter $1.4 billion spent a year ago.

Comments

[Nextel Acce...:]

It will take time, but the ship can be turned around!

2008 Aug 06 10:22 PM

[User 163599:]

More like the Titanic. She's taking on water!! Everyone stay calm. We have enough lifeboats for our current "high value" customers...

2008 Aug 06 11:27 PM

[sodisappointed:]

Jettison the Nextel portion. What is that demographic that uses the walkie-talkie anyway? Unless it's a Mom & Pop business, the personal users are those same "sub-prime" customers that Sprint is trying to get rid of (truckers, construction workers, landscapers, wanna-be gangstas, etc...). It was a HUGE mistake for Sprint to EVER had merged with Nextel anyway. The demographics of these the customers of these 2 companies before the merger were, and continue to be entirely different... Sprint (pre-merger)=white collar, higher ARPU customers, but had made some choices allowing SOME Credit Challenged (ASL = Account Spending Limit) Customers on; Nextel = Blue Collar customers or wanna-be or actually ARE "gangsta"/"pimp" types (remember the "Where you at" Santa Claus commerical before the merger?).

What was Gary Forese thinking?? And what is Dan Hesse thinking now keeping the Nextel portion??? Stop smoking CRACK!

2008 Aug 06 11:57 PM

[ChickenLips:]

User 239561, nice comment. It made me laugh. "Wanna-be gangsta" types? That's hilarious.

It's probably too late for Sprint. Just by word of mouth alone I have personally heard that their quality of service is extremely poor (calls drop off at random) and their customer service just plain sucks. Why would anyone pay for Sprint cellular service if it stinks and there are many other better competitive offerings available for similar or cheaper prices? I've had Verizon and T-Mobile and they were both damn good.

Until Sprint fixes their quality issues (and word of mouth reputation), customers will stay away indefinitely.

2008 Aug 07 02:50 AM

[mgv11:]

Sprint needs to keep marketing themselves, their customer service has been great the last year and certainly is better than Verizons, whom i left almost 2 years ago. Subscriber counts mean something, but I'm not sure its a customer service issue.

2008 Aug 07 08:19 AM

[stupid head:]

umm wtf are you talking about? Nextel had the highest ARPU in the industry before the merger. It is true though that Sprint has a word of mouth reputation of having a crappy network..... Though it has worked good for me

2008 Aug 07 09:03 AM

[CaptBob:]

I have Sprint: I expanded my service when hey offered me a 10% off the total to do so.

A year later the 10% discount dissapeared off my bill---or I got a 10% increase=semantics.

If you read the fine print--they can change--anything---any...
" --You can change--nothing---ever...

As soon as I check other carriers--the next thing to dissapear will be me!

The customer service numbers to United States agents are frequently changed. To get the latest one you have to spend a half hour navigating through Calcutta.

2008 Aug 07 11:57 AM

[sodisappointed:]

We need to differentuate between what "service" means. There's CUSTOMER service and there's NETWORK service.

CUSTOMER service: Sprint needs to drastically overhaul 90% of the structure. Which includes: getting rid of third party call centers and making ALL call center reps accountable on how they treat customers that call in.

NETWORK service: Sprint has the STRONGEST, FASTEST, and MOST RELIABLE network in the U.S., including PR, US Virgin Islands, Hawaii, and Alaska. NETWORK to NETWORK, Sprint would: Make Verizon cry UNCLE!; Kick AT&T's butt up and down the street, then take AT&T's lunch money.

2008 Aug 07 09:30 PM