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For Sprint, a tough 2007 ahead

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If you are a Sprint Nextel customer, at some point you have suffered from dropped calls. It seems that malaise is spreading to the service provider itself, which has hit a massive air pocket. The company today gave a guidance that could make anyone cringe. The news was so bad, that the company had to cut 5,000 jobs. Quick recap of the bad news:

  • In the fourth quarter ending December 31,2006, Sprint Nextel lost post-paid 306,000 subscribers, the only metric that counts amongst the Wall Street types. Analysts had estimated a loss of about 250,000 subscribers to defect to other carriers. UBS estimates another 330,000 will be gone in the first quarter of 2007 and expect these losses to continue.
  • The capital expenditures are going to be up in 2007 to $8.5 billion versus a shade over $7 billion in 2007.
  • The company will spend $300 million on WiMAX operating costs and $800 million on WiMAX capital costs in 2007 (updated), and more in 2008. No idea, how much, though they did promise coverage for 100 million possible customers by then. Chicago and Washington DC will be their first two trial markets for WiMAX.
  • 2007 revenues are going to be flat when compared to 2006, remaining in the $41-t0-$42 billion range.
  • The good news is that a lot of that money is going to be spent on 4,800 new cell sites, which will raise the total number of Sprint cell sites to 67,000, which compares favorably to 45,000 for Cingular and 26,000 for Verizon.
  • The company is planning a new CDMA based product for Boost customers that uses CDMA network and offers unlimited calling.

The company lost more than expected post-paid customers in the fourth quarter of 2006; will spend more money and will have a flat 2007 in terms of revenues – that’s a left-right-left combination that could leave any investor KO’d. Sprint should count its blessings that all busy bodies, aka bloggers and reporters, are in Las Vegas attending the CES.

In many ways you could predict that this was coming. In Septmeber 2006, Sprint COO Len Lauer quit the company. A month later Tim Donahue left the building. While trying to predict the future because of these developments was akin to reading tea leaves, still two senior executives leaving in quick succession is always a red flag.

Beyond the numbers, Sprint-Nextel’s problems stem from their dual network strategy – CDMA and iDEN. CDMA is doing fine, iDEN is a mess and causing customers to cancel and switch to other carriers. And Sprint-Nextel will remain a mess up until a point when its one network. And if that was not enough, Sprint-Nextel’s decision to add yet another networking protocol, WiMAX, to the mix is only going to create bigger headaches for the company. In a note to his clients, UBS analyst John Hodulik writes, “We believe the company remains committed to WiMAX but is re-evaluating its projections on the project.” Re-evaluating to slowdown, would be a good move at this time.

12 Responses to “For Sprint, a tough 2007 ahead”

  1. Sprint will survive. While Verizon and AT&T are still stuck in the stone age with sky high data prices, and stingy limits on their data, and features. Sprint is very promising; they have great data plans and WiMax will just confirm of what a large player Sprint really is in the data side of things.

    Sprint is a data provider with voice on the side. Where as AT&T/Verizon are voice providers with data on the side. And if you look at the trends in the US data is catching on – therefore putting Sprint in a good position.

    Also, with their new PowerSource this should help with keeping the Nextel subs.

    And Sprint is more focused on business customers than they are consumer. While they sell consumer plans, they are more tailored to the business niche (where VZW and AT&T are tailored for consumer). So there is another piece of great pride; Sprint is most for businesses (with their highspeed EvDo and Direct Connect).

    Also, Sprint has the most contracted MVNOs in the industry. They seem to ‘lease’ their network to MVNOs which brings in a lot of money.

    Also, Sprint has the national 1900 PCS liscense, as well as the nationwide 800 iDEN liscense. This is of great importance. This means Sprint/Nextel can add coverage/towers ANYWHERE in the United States – where as other carriers are limited to certain liscensed areas. This puts Sprint in another very valuable position.

    So yes… Sprint might not be doing good short term; but they are definantly in it for the long haul.

  2. tc1uscg

    Unlike OM, I’ve never had the problems with my Sprint service. From people I’ve talked to or been with at the time, it seems Verizon, TMobile, etc.. have had more issues with service (dropped calls, static, signal faiding, 1way audio) then my sprint service. But to each his/her own. Rather who makes you think they have a better network, fewer dropped calls, more powerful network, my money goes to the carrier who provides me with what I consider the best deal, bank for the buck or best support. Right now, it’s Sprint and no matter what JDPower, or Consumer reports wants people to think, I have a car in my driveway that proves they are full of crap (a honda) so why would I trust them about cell phone service?

  3. What it really, Really, REALLY comes down to is customer service. If you win that game NO ONE will leave and everyone will want you.
    Cool phones are a close second.
    I LIVE for EVDO (I use my Pocket PC more as a PC than a phone) so I am the minority, but if you want to get the Ipod / TiVo sales numbers you have to have good customer service in this game.

  4. I’m hesitant to respond to someone who starts a comment with an unwarranted insult, but I will. Charlie, Jesse and Sachin definitely have a better grasp on what’s happening here, read their posts carefully. 2.5 spectrum is absolutely a difference maker for Sprint. The capacity this provides cannot be matched by Verizon and AT&T just by using the 1900/850 spectrum. Verizon and Sprint have the same vendors. If Verizon could do something in the 1900/850 space, so can Sprint, and Sprint still has the 2.5. This is really about everything over data (IP), the commoditizing of voice, and who has the largest pipes. Sprint is doing what they have to: changing the game.

  5. Jesse Kopelman

    Charlie, I don’t dispute you on the whole buying time for the execs thing. It happens all the time. However, you and a lot of people totally miss the point on WiMax. WiMax is not magic. There is nothing you can do with the technology that you can’t do with other technologies. The issue is one of business models, not technology. By deploying WiMax that means you are offering true broadband. Once you offer true broadband it is a lot harder to claim that each application is a service that should be paid for individually. The business models it takes to be successful with broadband are anathema to Cingular and Verizon Wireless, so just because they can play me too with the technology doesn’t put them on equal footing. Does Sprint have what it takes to win in a world where everyone is offering real broadband? I don’t know. I do know they’ve proven they don’t have what it takes to compete under the prevalent business models.

  6. I won’t say I’ve never had a dropped call, but I can say I’ve never been aware of Sprint outages on the massive scale that Cingular had in our area when they merged with…whoever they merged with a few years ago. My Sprint has worked since 2001. I can recall losing a phone call in a grocery store once and while riding on an interstate once. That’s BEANS compared to my friends’ (possibly past) issues with Cingular! If the problems you speak of exist, perhaps only the folks who came over from them?

    Couple that with the $15 a month I pay for an unlimited data plan for my Pocket PC Phone (vs. Cingular’s highway robbery), and you’ll see why I have no need for the orange stain. Here’s hoping Sprint fixes what ails them, because where I’m sitting, the alternative appears untenable.

    Sprint’s made me mad in the past, but I will tell you the truth about my experience. Just don’t necessarily trust them with your photos. They WILL drop those!

  7. Sprint has always been at the forefront of technology. As a user, I feel CDMA technology is far superior to what the GSM folks have delivered so far, both in voice quality and data. I for one have never had any significant problems with Sprint coverage in all the major cities I have traveled to: Limited if any dropped calls and good reception. Have you ever tried to carry a conversation with someone over a poor GSM connection? I’d prefer a dropped call to a scrambled voice, thank you.
    As far as how the WiMax gamble plays, only time will tell. I foresee wireless communications, where voice is just one application of data, to become more and more commoditized. The competitive advantage, if any, will lie primarily in speed, price and reliability. Sprint is the only company traveling towards that vision with a strong footing. Others will no doubt follow, but whoever builds a sizable user-base first might just stay ahead in the game for years to come.

  8. Charlie Sierra

    You WiMAX guys are clueless.

    WiMAX only exists for Sprint to extend the time until the execs are fired, so they can maximize their bank/take.

    WiMAX and especially the 2.5Ghz block are of no value, and haven’t been for along, long time.

    Please read carefully, if WiMAX works/whatever, there is nothing that precludes VZW and ATT from rolling it out in their 1900/850 bands.

    So the deal is this: Sprint is the industry’s lab bitch. If it works, others will follow (and it takes far less time to overlay an air-interface, than it does to migrate active handsets), and if it doesn’t, well just call in the PE boys.

    Apple vs. Sprint on the same day, does the contrast get any clearer?

  9. Jesse Kopelman

    I’m with NextBlitz. WiMax is make or break. That said, even if WiMax is a success you then have a huge job ahead trying to figure out what to do with CDMA. My own though would be to spin the CDMA network off as a separate company who’s only business was wholesaling capacity to retail carriers (including the new WiMax based Sprint who might need supplimental coverage from 3G until the network is better built out).

  10. it’s a bit unsettling to see sprint fail on the whole nextel absorption, screw up expenses and generally fall apart – but i do not think that they are going to die on the vine…as a long time user in the boston area, i’ve had few issues though have noticed assorted dropped calls (all carriers suffer from this), as well as random jumps to roaming in non-roaming zones (or traditionally non-roaming)

    really my concern is their handset lineup – they have absolutely zero sex and cool appeal with younger users, that game belongs to tmobile and cingular as they secure early release contracts for every cool phone that comes out…sprint has got to work more to build strong relationships with manufacturers and close in on some great lockin releases…if they could deliver a kyocera flipback style phone (that cheap qwerty device from virgin prepaid, with virgin already being a sprint partner), they might shore up some cool with people under the age of 25…otherwise i just see another struggling business services provider offering high priced handsets and long term contracts BUT with the lowest charge for data access plans around…

  11. Charlie Sierra

    The only question wrt Sprint is how much do they have to pay Gary Forsee to leave.

    Its been nearly 4 years since he broke his contract with Bellsouth, and he’s done his level best to screw up and already screwed up company.

    PS. And another thing, GF is no Nardelli.