Sprint Nextel Comments on Churn with iDen and CDMA

| About: Sprint Corporation (S)

On Sprint Nextel (NYSE:S) Fiscal 2Q conference call, executives discussed ways to improve churn rates for Nextel's iDen and CDMA:

Christopher Larsen - Credit Suisse First Boston

... If you look at the churn reduction, the two areas to focus on historically, customer service, network issues -- are you happy with where the customer service levels are now? If not, do you have a sense of a path where that is going? Then, are you happy with where the network is now, or do you need more spend there?customer service levels are now? If not, do you have a sense of a path where that is going? Then, are you happy with where the network is now, or do you need more spend there?

Len J. Lauer - Chief Operating Officer

... On the customer service levels, we are seeing good improvements when you look at a couple of things. One is what percent of the calls are answered in a 30-second timeframe. We perform consistently well in our iDEN base. We have not on the CDMA side. We had some challenges where we were not staffed appropriately. We fixed that, and starting early in the second quarter, we have been running fairly consistently with hitting the metric we want to hit on CDMA and pretty close to matching where we are on iDEN, so I think that is good news.

Very focused on first call response, and that is handling the customer’s issue, question, problem on the first call, not transferring. We have had good progress there. We are not where we need to be, but we are pretty encouraged by the trends that we are seeing.

At our store level, in terms of customer satisfaction at our stores, with the redesign, putting the greeter in place, having express lanes for people that have accessories or handset repair, that is also showing improvements for us.

We also have a host of new systems that we have put in place in terms of back-office systems to help our over 20,000 customer care reps, and then with the unified billing platform that we have that we will be putting in place, that Amdocs is working with us on. We start the conversion of our CDMA customers in the October timeframe, and we finish that about a year later. That will help us because it gets us to an integrated care platform, where an agent will not have to toggle between four or five different systems. There is one password sign-on, they get to see a lot of customer profile history, when they contact us, et cetera.

We have a lot of those capabilities in iDEN. We do not have them on CDMA, so I think that will make our reps more productive and just come across as more responsive to our customers.

We also have focused very much too in terms of shifting towards prime customers coming on. As we do that, a lot of calls get generated by our sub-prime base. They tend to call us twice as high as our prime customers. So as we talk about both the acquisition side in terms of changing, but also the treatment policies, we did not go into detail on, but we made a number of changes in how we treat our base customers to still protect us in terms of bad debt, but to cut down on forcing the number of calls that come into our call centers. That will help us very much, as we have a lower mix of ASL going forward, a lower acquisition ASL, but also the treatment options. That will help us in customer service.

On the network side, [we added on] a very focused strategy to improve our networks. Our Board approved us spending an incremental over $2 billion compared to the standalone iDEN and CDMA plans to improve the quality of our networks. That is both improved expansion for our iDEN network to get out to the reaches of the suburbs, and also for better capacity, more capacity at our iDEN network. Also, on CDMA, so we can improve the coverage and also improve expansion of that. When you take a look at our performance on drops, on blocks, on signal density, we are very, very proud of these networks. In a number of markets, we are number one. Where we are not, we are very close to the number one provider.

That is the reason we are very encouraged out there with our campaign to talk about the most powerful network. We have been hurt that in the past we have not advertised about the strength of our network. As our competitors have, people assume if you do not talk about it then you must have an inferior network. That is not the case.

We feel very good about this. Our expansion with DO and then with 4G, we have a great story to tell. It is time to go tell it and that is what we are going to do.

Gary D. Forsee -CEO, President and Director

I would add one point -- both in my comments and Len's, we talked about the new organization model. I think if there was any question about the customer service and focus on churn in the organization model, with Mark Angelino heading Sales & Distribution, Tim Kelly in essence being the Chief Service Officer across all platforms and across all businesses, I think this is a natural evolution from the time of the merger. Obviously we have continued to dial in on the focus across the platforms and marketing message, but all this conveys now with this organization model, with Mark and Tim and Mark Schweitzer focused again on delivering products and services and capability with the focus on that customer experience and reducing churn. I think this model will nail that issue...

Timothy Horan - CIBC World Markets

Back on the sub guidance a little bit more, do you think this is the peak churn rate? When do you think the post-paid market share losses will peak out? Related to that, what percentage of your base do you think really is sub-prime at this point? How long will it take to work through the process that we are at? Thank you.

Len J. Lauer

In terms of churn, we will see churn, a slight up-tick in the third quarter. That is mainly due to seasonality, as we have seen over the years, we have talked about this a number of times. That second quarter tends to the best payment quarter for sub-prime customers. That will hurt us a little bit, just a touch towards the third quarter, and then we expect to see it coming down after that.

To your question about how big is the base, how long does this take, you are going to see, obviously we have a higher percent of our base on CDMA at sub-prime. CDMA and the former Sprint legacy was bringing that on for a number of years. On the Nextel side, we just did that in the last couple years, so it is a higher percent on CDMA.

I think the main piece going forward is not, it is a little bit of churn coming off that base but the main thing we are focused on is how do we put in much better treatment options into that base, just so that we can get a better customer experience?

Because some of the involuntary churn is actually protests of folks who just do not like the fact that we are hot-lining them so many times and how we treat them, that they are leaving on us. We have done some things in terms of improving the treatment, that could give out a better experience with ASL customers and we think will help us in terms of bringing down the churn. We just put those in place in the last 30 days and we need time to have them come into the base and see how that helps us out overall....remember that one of the main issues is the mix. We talked about the multiple actions we are taking in acquisition changes and also treatment of the base of our sub-prime customers, that will help us in churn.

Then, the second piece too is just on where we are with the real and perceived challenges. In terms of the network, we are going to change that by talking about the most powerful network. In terms of price values, simplifying the pricing, amplifying the focus, or really targeting the focus on iDEN to its strength, in really the business markets, NASCAR fans and Hispanic segments.

I think your challenge us about no one else is talking about macroeconomic conditions, remember that was in regard to Boost, and Boost is prepaid. Our competitors, I do not remember in their calls or announcements really talking a lot about prepaid. Boost obviously is the best performing prepaid platform out there. We set expectations for this and that is why we wanted to give you feedback on that. Post-paid tends to -- excuse me, prepaid tends to go after customers that tend to be struggling a little bit more on the economic side that would get hurt by any change in gas prices, et cetera.

Let’s see where some other prepaid companies come out and report, but again, that was really related to Boost and not to our overall post-paid business.


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