Sprint Benefits From Better Customer Service, Brand Image & New Smartphones

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Sprint Nextel (NYSE:S), which competes with AT&T (NYSE:T) and Verizon (NYSE:VZ) in the mobile business, recently reported earnings for the first quarter of 2010. We have updated our price estimate for Sprint’s stock from $4.31 to $4.50, in part due to continuing growth in Sprint’s prepaid business and the reduction in postpaid (monthly) subscriber losses.

Although a turnaround in the overall postpaid subscriber losses for Sprint appears distant, we expect postpaid CDMA subscriber count to improve aided by factors like improving customer service, more visibility in brand image, and the introduction of new smartphones.

Below we discuss the three main factors that are leading to an improvement in Sprint’s postpaid mobile subscriber business.

1.  Sprint’s Customer Satisfaction Is Improving

Sprint saw an improvement in customer satisfaction for the ninth consecutive quarter.  According to a survey conducted by the Yankee Group and Mobile Enterprise Magazine, business customers (with more than 500 employees) ranked Sprint as the top service provider for voice service and data service satisfaction.

Sprint claims that it has significantly reduced the number of dropped and blocked calls, and that its network performance has improved.

Improvement in customer service levels is helping Sprint drive subscriber churn levels down.

2.  Improving Brand Image Is Resulting in Growth in Gross Subscriber Additions

Sprint continues to make efforts to improve its brand metrics and strengthen its brand image. Customers are increasingly associating terms like “value” and “4G” with Sprint and are more likely to recommend Sprint among its own customer base. According to a recent study conducted by Reputation Institute, Sprint’s corporate reputation score with consumers grew 11% in the past year, 3x more than that of AT&T and Verizon.

Sprint saw a 5% annual improvement in its share of gross additions.  In addition to improving overall gross subscriber additions, Sprint’s postpaid subscriber losses in first quarter of 2010 registered the largest year-over-year improvement in past five years.

3.  Introduction of Better Mobile Devices Creating Additional Demand

The penetration of smartphone users among Sprint’s subscriber base is increasing.  Smartphones or touch screen handsets constituted about 57% of Sprint’s CDMA gross subscriber additions / upgrades in the first quarter of 2010. This can be attributed to the company’s introduction of new devices for both prepaid and postpaid subscribers.

Sprint launched exclusive LG devices along with Motorola smartphones like i1 and Brute. The recently launched HTC EVO 4G that uses Android 2.1 is the first 3G/4G smartphone to enter the US market. On the prepaid side, Sprint’s two new CDMA handsets and the first BlackBerry under the ‘Boost Mobile’ brand has created significant demand.

We believe that the above trends can help Sprint recover some of its CDMA mobile subscriber losses.  You can modify the forecast below to see the impact on Sprint’s stock price if its CDMA market share were to recover sooner than we forecast.

For additional analysis and forecasts, here is our complete model for Sprint’s stock.

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