Company Result

Sprint adds postpaid users, but at great cost

Sprint passed a critical and long-awaited milestone in its third quarter, announcing a net gain of postpaid customers for the first time in more than two years. The company has struggled for years to arrest churn from its network on a sustainable basis, and may finally have achieved that – but not without a massive amount of pain. Indeed, it also announced further swingeing cuts which suggest its successive turnaround plans have been too little, too late, and more urgent remedies are now needed to keep those net adds piling up.

Sprint plans to cut about $2.5bn its annual operating cost budget by cutting jobs and other expenses over the next few months. In parallel, it aims to improve quality of service and enable new competitive services, by completing the seemingly never-ending process of upgrading and densifying its network, which will, of course, entail hefty capex.

CEO Marcelo Claure said on the earnings call that Sprint is not just cutting opex costs, but is also looking to be innovative on services – something that has mainly, this year, been associated with rival T-Mobile and its Uncarrier initiatives. Most prominently, it is introducing a leasing system and is working “with SoftBank and other recognized companies to set up a lease company to monetize device leases by our customers. We have agreed upon most of the commercial terms. We’re currently finalizing the documentation and we expect to close first tranche in the next few weeks,” Claure said. Importantly, the leasing company will be off Sprint’s balance sheet.

Sprint said it had seen positive postpaid net adds for six consecutive months. In Q3, it added 1.1m net adds, 553,000 of them postpaid – a year earlier the figures were 590,000 with a net loss of 272,000 in the postpaid sector. And 199,000 prepaid customers migrated to Sprint’s postpaid service – excluding those, postpaid net adds would have been 354,000.

By comparison, T-Mobile US added 843,000 postpaid customers, the highest number in the US in calendar Q3, while Verizon added 430,000 and AT&T 545,000.

On the weak side, and showing the urgent need for the new network and its promised speeds and apps, Sprint said ARPU fell to $54.02, from $60.58 a year earlier (though total billings per user rose slightly when equipment instalment plans were included).

As for the figures, Sprint reported a net loss of $585m, or 15 cents per share, for its fiscal Q2, on revenue of $7.98bn, below Wall Street expectations of a loss of eight cents a share on revenue of $8.1bn. Total operating revenue was down 6% year-on-year, as customers moved to cheaper rate plans associated with device financing options and postpaid losses in earlier periods affected incomings.

Claure said that the company will achieve a sustainable reduction of at least $2bn in run-rate in operating expenses. The cuts will come from every area of the business, “leaving no stone unturned,” he said. “Ultimately, we must find a way to grow and optimize the business at the same time,” he said. “I understand that some people will be skeptical, believing that those are two mutually exclusive outcomes. Nevertheless, we’re extremely confident that we can execute on both at the same time.”

Analysts were disappointed not just by the headline figures, but Claure’s failure to provide more details about exactly how he will deliver that double whammy. They wanted more information about the important leasing project, and on the network.

Claure insisted that the telco was seeing early positive results from its densification program – but successive CEOs have been saying that for several years, without providing any of the details which AT&T, in particular, is accustomed to share. Claure remained enigmatic, just saying “nearly all” of Sprint’s existing macrocell sites will be upgraded to support 800 MHz, 1.9 GHz and 2.5 GHz for LTE and that is will deploy thousands of new macrocells and tens of thousands of small cells.

“We’re also excited about the early progress on the densification plans to further differentiate our network in the future. Most of the activity today has been on activities for our small cell deployments and we’re very pleased with the early progress,” Claure said on the earnings call. “I can report that we have steady progress and we’re very happy with the results we have so far as we continue to build our network.”

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