Remember Gary Forsee’s upbeat outlook after seemingly strong results in early 2007? Surely the Dumb Cowards knew the company was teetering on the brink of disaster but made a conscious decision to sugar coat the numbers and present a rosy scenario. The stock price ticked upward and Forsee’s vision and leadership was finally bearing fruit. We now know it was all a house of cards that came tumbling down within months. The SEC reprimanded S and requested more detail in its forward looking statements in future SEC filings.
Let’s move ahead to Q1 2009. In its Q1 press release, Sprint announces that the “loss of 182,000 total net subscribers represents a sequential improvement of over 1 million and best sequential net change in total subscribers in Sprint Nextel history.” Wow, sounds impressive! But wait, the majority of the gains are from low revenue wholesale and prepaid services. So how did post-paid do? Minus 1.3 million subscribers compared to million+ net adds for all major competitors. The Trolls asks “what does all this mean?”
The Troll has done the math and in previous posts and has warned of liquidity issues post 2010. But let’s look at S own statements from its Q1 SEC filing.
“If the net losses of post-paid subscribers continued at the rate experienced in the first quarter 2009 indefinitely into the future, it would have a significant negative impact on Sprint’s financial condition, results of operations and liquidity in 2010 and beyond. The successful prepaid wireless offerings, as well as the successful wholesale offerings, will partially offset these effects, but are unlikely to be sufficient to sustain the Company’s level of profitability and cash flows unless we are successful in reducing the decline in post-paid subscribers…..
….If we are unable to reduce the rate of losses of post-paid subscribers in 2009 or 2010, it would have a significant negative impact on cash provided by operating activities and our liquidity in future years.”
So, while touting the success of the pre-paid and wholesale business is a nice diversion, the real story is the loss of post paid customers. We’ve long known about the exodus of iDEN customers, but starting last year CDMA has been losing customers at an alarming rate. Hesse continues to state that the decreases will improve in 2009, but what is he basing this on? Even the rosiest projections for the Pre will result in a net subscriber gain of 500k for 2009, a pittance compared to losses of 1 million+ per quarter. If anything, the trend in pre-paid services will continue to cannibalize S pre-paid services. And lack of capital investment is certainly not going to improve network performance.
So what’s the answer? Certainly, being boring is not good business at this time; business as usual will result in failure. Interestingly, the success of Boost and the outsourcing play with Erikson does offer a glimmer of hope. It will require a real nuke however, not a ploy like re-instituting Jeans Friday.
Subscribe to:
Post Comments (Atom)
Troll - I found your response on Kansascity.com which then gave me the address to your website. Let me assure you, there is a 0% chance Sprint has positive post-paid in '09 and probably '10. Although the Palm Pre may be a great phone, it just won't have the strength do it.
ReplyDeleteIt's really simple math. Sprint has a churn rate of approx. 2.25%. With a subscriber count (post paid) of approx. 35M subscribers, that means they will churn off approx. 9.4M customers in '09. In the qtr, they lost 1.25M subscribers. With this loss and with the churn rate 2.25%, you can figure their gross adds for the qtr of approx. 1.1M adds. The 1st qtr is always the 2nd best quarter of the year bringing in approx. 26% of their gross adds. If you take 1.1M gross adds in the 1st qtr and divide it by 26%, this shows Sprint will have approx. 4.27M adds for the year. Therefore, if they add 4.27M customers and lose 9.4M customers - I predict they will lose over 5M customers in '09. Now, this is how they are trending today. The Palm Pre could change that. Two problems with that - they are launching it in late May, early June. June and July are the worst months for wireless. Second, Plam doesn't have the brand strength that Apple does. My guess/prediction would be the BEST case scenario would be the Pre would lower churn to 2.0 and rase gross adds by 1M adds for the year. Best case scenario - Sprint loses 3.6M adds in '09. The only way Sprint stops the loses is lowering their all you can eat rate plan to $69/voice and $79/voice and data.
Nicely said 8:56 Anonymous. the Troll and you think alike. Your scenario of reducing the all you can eat plans will be the likely approach, but won't be enough to sustain the company long-term, especially without a 4g strategy.
ReplyDeleteAlso like the analysis of the Pre although maybe a little too optimistic. Palm anticipates selling 1 million units in 2009. About two-thirds of those will be existing customers. The remaining will be new adds. Assume the that about one third of the existing customers would have left for another carrier and you're looking at a net savings of about 500k subscribers.
the Troll agrees with your best case scenario of minus 3.6 million net adds, although it could easily be much higher if the trend to post-paid subscribers continues.
There are two ways Sprint can turn around their negative net adds in the short term - and only two ways.
ReplyDelete1) reduce the Simply Everything price plan by $20
2) Ease credit policy. And by the way, in my opinion, they've totally screwed this up. Sprint has been falsely led by some of their finance folks that subprime is bad. That simply is not true. Actually the there are segments of subprime which are the highest, most profitable customers. Subprime customers naturally have a higher ARPU and are heavy data users. Yes they also churn more frequently. But rather than say no to them, figure out how best to serve them that works for both parties.
Thinking a handset will reverse their fortunes simply implies many within Sprint do not understand the business - which I personally can attest is true.
well, another great post and comment, Troll.
ReplyDeleteLet's look at Boost first:
Churn ran almost 7%, even with the huge influx of new adds softening the impact. Run the numbers like this: 100/monthly churn is a good approximation of net months on service. so, only 13 + months of revenue. Several analysts have picked up on two further impacts. 1) churn tends to show up late, as prepaid folks rarely port their numbers - they just leave and the churn shows up X months later... 2)current run rates for Boost are dropping fast (the talking heads are panicking about subsidy cost and loss of postpaid focus).
Put those together and Boost is primed for a flip to the wrong side.
Oh yeah, let's grow our distribution by 50 dedicated stores. Let's see 50 stores doing 200 new adds (wildly optimistic, as there are plenty of dealer doors now), that's a whopping 30,000 gross adds a quarter. Each store runs almost 500k! in capital (S takes FOREVER to build out a store)...so that's 25 million dollars for 100,000 gross adds in the first year...$200 in Cash Burn CPGA without operating costs.
On to the Pre. Agree with your post that even successful launch is small overall impact on postpaid. Biz side is in the doghouse, and consumer is entering the summer doldrums. Watch Best Buy price this puppy under market, and then Company stores have to price match. Pre is already "pre-announced in Canada (with "year end" launch), and there is a low end version (no slider)in the works that will not be subject to exclusivity agreement. Palm isn't dumb...they will move ASAP to capture all carrier's PALM base.
I like the iden contract idea - Moto floated that back when the idea was to have the Feds own the network (first responder proposal), Moto operate it and Sprint customers grandfathered...
Clearwire - dump it, dump it, dump it. Existing Sr. mgt is chasing away their employees daily. Visit any rating site and see what customers and employees experience.
Interesting that Hesse didn't discuss Q1 STI results on Monday's employee call....but then, it's annual this year and not paid until the "whoops, no money in the till" discovery in May, 2010...(same time as our 401(k)"no-profit sharing plan")...
Alpha Dog