Running Backwards: Sprint Trails in Q1 Results

Sprint has reported its results for the first quarter of 2008 and the headline figures are as bad as incoming chief executive Dan Hesse predicted in the annual results (see United States: 29 February 2008: Sprint Goes All In for US$99 per Month as Revenues Continue to Decline and US$30 bil. is Written Off). While there was some levity in the doubling of operating income from the wireline business to US$156 million on 2% revenue growth to US$1.6 billion, the core wireless business saw a decline in overall revenues of 9% year-on-year (y/y) to US$8.0 billion.

Subscriber losses topped the 1-million mark, with even the pre-paid user base slipping into the red as it lost 200,000 subscribers. The post-paid user base fell by 1.07 million, with only growth in the wholesale user base of 167,000 and 16,000 new subscribers to the remaining affiliate networks providing some relief.

However, Qwest—a major wholesale partner with over 800,000 subscribers—is shifting over to resale operations with Verizon (see United States: 26 February 2008: Qwest Looks for New Options in Wireless Partnerships). Ongoing difficulties for MVNO operators, including several high-profile closures and stagnation at Virgin, which is 50% owned by Sprint, also bode ill for this remaining source of subscribers.

The losses at Sprint come in contrast to continued growth for the other national wireless carriers, which have seen growth in subscribers, revenues and operating incomes over the last year as operations mature and hit the sweet spot for cash generation.

Outlook and Implications

Away from Sprint, while headline growth remains strong, overall growth between 2007and 2008 for the main carriers has been boosted by consolidation, with T-Mobile, AT&T and Verizon all making acquisitions to boost their rural networks, which have also added between 700,000 and 1.7 million subscribers (see United States: 31 July 2007: Verizon Keeps on Climbing in Q2, Bids for Rural Cellular; 25 January 2007: Dobson Acquisition Helps AT&T Break 70 mil. Wireless Subscribers in Strong Q4; and 17 September 2007: Under the Spotlight—Wireless Consolidation in the U.S.). Net additions have fallen drastically overall, down by almost 40% across the top four national carriers. While there are many other carriers operating regionally, such as Alltel, US Cellular, MetroPCS and Leap Wireless, the last two have reported either fairly static levels of growth or a significant reduction (27.7% at Leap Wireless) in the number of new net additions, showing that there is a trend of slowing growth, with higher penetration and a slower economy combining their impact. AT&T has led the pack in actually building a significant increase in net additions, which could likely be attributed to the star power of the iPhone.

Sprint is not only seeing a declining subscriber base, but significant pressure on ARPU. The Nextel acquisition was partly intended to leverage the high ARPU generated by the company, which had managed to attract a large number of enterprise and government users, particularly through the Push-to-Talk (PTT) function that the iDEN network facilitated. The iDEN network is seeing the bulk of losses, falling from 17.3 million at the end of 2007 to 15.7 million. The dual-mode Powersource platform only grew from 1.4 million to 1.6 million users. A combination of improved data services and new competition for the remaining PTT users is adding to the pressure on the ageing iDEN network (see United States: 16 April 2008: Carriers Set to Up Push-to-Talk Competition in U.S.). The worsening position Sprint finds itself in has meant that it finds the only way to compete is to undercut rivals, which, if it manages to stem the subscriber attrition, will make financial recovery even more difficult (see United States: 29 February 2008: Sprint Goes All In for US$99 per Month as Revenues Continue to Decline and US$30 bil. is Written Off).

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