Acting CEO Says Sprint Must Slow Customer Losses
Sprint Nextel must keep more of its customers, acting CEO Paul Saleh told analysts in the company’s Q3 results call Thursday. Sprint operating income plummeted 25 percent from a year earlier to $658 million. Revenue was down 4 percent to $10 billion. Subscriber deactivations from the iDEN wireless network were the main problem, Saleh said. The former Nextel executive said he won’t be “standing still” as Sprint searches for a CEO to succeed Gary Forsee. He gave two “key objectives” to stop the bleeding: improve the experience of Sprint’s customers and simplify the business. Wall Street analysts were skeptical.
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Customer defections and reduced revenue per user reduced wireless revenue 4 percent for a year earlier to $8.7 billion. Operating income dropped 35 percent to $5.1 million. Sprint ended the quarter with 373,000 fewer wireless subscribers than it started with, as postpaid churn shot up 0.3 percentage point from the previous quarter. About 568,000 new customers subscribed to Sprint in the quarter, but Nextel iDEN’s customer losses reduced Sprint’s customer base, the company said. At the end of September, Sprint had 34.1 million CDMA customers, 18.7 million iDEN customers and 1.2 million dual-network PowerSource users, Sprint said. Sprint’s lagging iDEN business also hurt postpaid revenue per user, which dived 3 percent from a year earlier despite “modest annual growth in CDMA” revenue per user, Sprint said.
Net adds will keep suffering fourth quarter, Sprint said. The carrier trimmed consolidated wireline and wireless revenue projections for 2007 to “slightly below $51 billion.” The carrier slashed spending projections to “the mid-$6 billion range,” from about $7.2 billion. Sprint also withdrew earlier 2008 guidance, saying it will release an updated outlook “early next year.” Management changes caused the pullback, Saleh said.
Sprint will focus harder on current customers, who tend to subscribe more to higher-priced plans and buy more data services than new ones, Saleh said. “We must treat current customers as our best customers,” he said. Sprint plans to “better align customer pricing benefits to tenure,” added Chief Marketing Officer Tim Kelly, hinting that Sprint will soon change its early termination fee policy. Sprint also plans to introduce a rewards program, improve customer care, and install an alerts system to notify customers when billing deadlines near.
Sprint must simplify, killing anything that doesn’t improve customers’ experience, Saleh said. Changes will focus on underperforming distribution channels, customer care and marketing promotions, he said.
A Bear Stearns analyst questioned Saleh’s priorities: “Is there a point in time when we get back to growth?” he said. “The focus is on retention, but that does not mean we're not interested in growth,” Saleh countered. Customer loss was the problem this quarter, not gross adds, he said.
Sprint will keep switching customers to a single billing platform this quarter, Saleh said. Sprint had moved about 10 million customers by October and plans increase that 5 million this year, leaving about 12 million for 2008, he said. Streamlined billing will improve customer care, since bad account setup was among the main reasons customers called in, said Chief Service Officer Bob Johnson.
Sprint can slow iDEN customer loss if it “reinvigorates the Nextel Direct Connect franchise,” Saleh said. In early 2008, Sprint will launch QChat, a CDMA successor to the iDEN push-to-talk service, he said. But part of Sprint’s Direct Connect strategy involves releasing three iDEN-only devices by the end of the year, a point that seemed to anger a CIBC analyst. “I'm really confused why you would be rolling out new iDEN handsets if you think QChat’s going to work,” he said. “Why not just shut down the iDEN network as fast as you possibly can?”
Continuing iDEN support is important for the transition to CDMA, Saleh said. “We still have a very large base of business customers… who depend on that device,” and “a lot of business applications that are integrated into those devices,” he said. “A broader portfolio of iDEN products will be important” until Sprint is comfortable it has a “seamless” process porting customers from iDEN to CDMA and a “high-quality” customer experience. Moving iDEN customers to CDMA is a “multiyear process,” Saleh said, declining to say when the company will kill iDEN.
Though iDEN is losing customers, the network is technologically steadier than ever, Saleh said. In September, “every single iDEN market outperformed historical bests on dropped call rates,” he said. Customer dropoff was not reason for the improvement, Saleh told a Lehman Brothers analyst.
The WiMAX rollout is undergoing delays. Sprint is “running slightly behind” on network equipment purchases, Saleh said. But Sprint is on track to soft-launch WiMAX in Baltimore, Chicago and Washington, D.C., by year-end, he said.
Wireline results were solid for the quarter. Revenue was $1.6 billion, nearly flat with 2006 results and driven by a year-over-year doubling of Sprint cable VoIP customers, it said. Operating income was $158 million, up 84 percent due to reduced spending. Sprint wireline expenses were $138 million, down 46 percent from a year earlier.
Saleh offered a vague update on Sprint’s CEO search. The board is working “as expeditiously as possible” to “select the most capable, qualified individual,” he said. Meanwhile, Sprint will be “acting decisively,” he said.