Sprint’s New CEO Gets Down To Business, Launches New Plan To Lure Customers

Within one week of taking over, Sprint‘s (NYSE:S) new CEO Marcelo Claure has given an indication of how he intends to turn around the company. On Monday, the company announced a new set of shared data plans called Family Share Pack, providing customers more data per connection at lower costs than rivals. In addition, the carrier said that it would reimburse customers for the cost of switching over from other carriers. These recent announcements mirror the “Uncarrier” initiatives launched by T-Mobile earlier this year and it looks like Sprint is setting the stage for another price war in the U.S. wireless industry. ^[1]

Over the past year, Sprint has faced intense competition for new subscribers, with T-Mobile stepping up its “Uncarrier” promotions, AT&T (NYSE:T) responding aggressively with its “Next” plans and Verizon (NYSE:VZ) banking on its superior network quality and “More Everything” offerings. Sprint has also been lagging rivals Verizon and AT&T in LTE coverage and quality, which is proving key to retaining and adding new subscribers in a saturated market.

At present, Verizon and AT&T lead the U.S. wireless market with about a 30% share each, followed by Sprint and T-Mobile which have shares of 14-16% each. Although it lagged behind the major players until last year, T-Mobile made great strides in the last six to nine months in adding subscribers with its “Uncarrier” initiatives and is poised to overtake Sprint as the third largest carrier in the U.S. by the end of this year. ^{[2] [3]}

Our price estimate for Sprint is about $8.50, which is significantly above the current market price.

See our complete analysis for Sprint

The New Plan

The Family Share Pack plan will enable a family of four to consume 20 GB of data for $160 per month, a significant jump for Sprint in terms of data offered. The new plan options are also significantly more cost effective than those offered by market leaders Verizon and AT&T which provide only half the data (10 GB) at the same price ($160). The new plan will enable users to add their tablets to the shared account as well, since the maximum lines per account have been increased from four to ten.

It is clear from these latest offerings that Sprint has no qualms about starting a new price war in the highly competitive U.S. wireless market, if it helps in turning around its declining subscriber base and market share. With extra data offered at the same price as rivals, the new plans seem to be a good strategy to lure customers away from the other carriers. However, we will have to wait and see how the other players react to this announcement before we estimate the effectiveness of this new plan for Sprint.

Focus On Subscriber Adds

With the wireless market becoming increasingly saturated, carriers have become aggressive with their pricing strategies in the last few quarters in order to gain market share. Sprint has felt the effects of this competition and has consistently lost subscribers to its peers. The adverse impact of rising competition on Sprint can be gauged from the fact that it reported a net loss of 181,000 postpaid and 542,000 prepaid subscribers in the last quarter, while Verizon and AT&T gained about 1.4 million and 800,000 new users, respectively. Although the loss of prepaid subscribers intensified in this quarter compared to the previous quarter (364,000), the carrier reported an improvement in net postpaid subscriber losses. This was also reflected in the carrier’s overall retail churn rate, which improved by 9 basis points to 2.09% in the postpaid segment but increased by 15 basis points to 4.50% in the prepaid market.

We expect Sprint to further improve its postpaid churn rate going forward owing to its recently upgraded network and its new and highly competitive shared plan offerings. Since data is increasingly becoming the most important aspect of smartphone usage by customers, network quality and data costs are likely to be the deciding factors for customers in choosing their wireless provider going forward. Considering that Sprint’s new Family Share Pack is arguably the most cost effective data plan currently in the market and its upgraded 4G network now covers about 254 million people in 488 cities across the country, we expect Sprint to recover lost ground quickly and get back to positive net user adds by the end of 2014. This is, of course, assuming that it can maintain this price advantage for a significant part of the next 4-5 months. ^[4]

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1. Press Release, Sprint, August 18 2014 [↩]
2. Report: T-Mobile overtakes Sprint in Q1 as No. 3 U.S. smartphone buyer, Fierce Wireless, May 22 2014 [↩]
3. T-Mobile now #1 prepaid carrier, overtakes Sprint, Tmo News, Aug 6 2014 [↩]
4. Sprint Earnings Call Transcript, Seeking Alpha, July 30 2014 [↩]