Big 4 – 2 = Big 2: Sprint Nextel, T-Mobile USA falling behind larger rivals
November 10 2008 - 12:31 pm ET | Allie Winter | RCR Wireless News
With the wireless industry’s nationwide players having posted third-quarter results, it appears that the market is quickly changing from a battle of the big 4 to a war between the big 2.
Last week, the industry’s No. 3 and No. 4 operators, Sprint Nextel Corp. and T-Mobile USA Inc., posted results that fell well below growth posted by their larger competitors and highlight an increasing gap between the haves and the have nots.
Sprint Nextel, as has become a recent trend, said it lost 1.3 million customers during the quarter, pushing its total customer base to 50.5 million subscribers, the lowest level since mid-2006. The drop came despite year-over-year improvements in customer churn that were not enough to counteract mass defections from the carrier, especially among high-revenue postpaid customers.
T-Mobile USA has similar challenges; the carrier added 293,000 postpaid customers during the quarter, its lowest postpaid growth since 2001. The industry’s No. 4 operator’s prepaid offerings attracted 377,000 net customers during the quarter, which helped push the carrier’s overall growth to modest levels.
But, in comparison to AT&T Mobility and Verizon Wireless — both of which added more than 2 million customers during the quarter — the results look grim.
While neither Sprint Nextel nor T-Mobile USA mentioned any specific destination for their defections or slower growth, analysts continue to point fingers at AT&T Mobility’s exclusive offering of Apple Inc.’s iPhone and Verizon Wireless’ continued perceived superior network quality as likely causes.
“AT&T indicated it saw 1 million customers switch to AT&T due to the iPhone, and it appears many of those customers may have come from T-Mobile,” noted Kate Price, analyst at Technology Business Research. Price made similar comments in a research note regarding Sprint Nextel’s quarterly results.
And with AT&T Mobility keeping the 3G iPhone on its shelves and its shelves only until 2010, it’s likely to keep welcoming (and stealing) customers.
Tough times to continue
Susan Welsh de Grimaldo, analyst with Strategy Analytics, said Sprint Nextel needs to staunch the loss of customers if it wants to continue as a respected challenger in the mobile space.
“With quarterly losses of over a million subs paired with flat-to-declining ARPU, Sprint Nextel still has to prove it can turn things around and stay in the race,” she said. “With AT&T Mobility showing strong subscriber and data revenue growth with the iPhone phenomena, and Verizon Wireless preparing to leapfrog its way to the top with the now-approved merger with Alltel, Sprint Nextel really has its work cut out for it.”
Analysts expect Sprint Nextel to continue losing customers through at least the first half of next year.
“Its performance just does not spell recovery — at least not yet,” Welsh de Grimaldo said.
Google to the rescue
Looking in the crystal ball for T-Mobile USA, Welsh de Grimaldo is a bit more optimistic, despite the carrier’s equally rough quarterly earnings. She said the carrier continues to be sidetracked by the rollout of its 3G network, but that those deployments will be key for the carrier to remain competitive with its larger rivals. “If it can really deliver on upgrading its subscriber base, that’s going to be a good play for them so they don’t have customers who leave and go to other operators for that 3G experience.”
T-Mobile USA also could start to see some momentum from the recent launch of its HTC Corp.-built G1 handset that runs Google Inc.’s Android operating system. The device garnered strong reaction following its launch last month with the carrier having to shut down pre-orders soon after announcing its launch date. In addition to countering AT&T Mobility’s iPhone exclusive, TBR’s Price said the G1 could help T-Mobile USA increase data revenues that have failed to garner traction.
“Though the company’s improvement in data monetization was not impressive [during the third quarter], the addition of higher-end devices, such as the G1, will likely inflate data ARPU in upcoming quarters,” Price said. “Just 17% of the company’s revenue originated from data, as opposed to 25% and 24% for Verizon and AT&T, respectively.”
Welsh de Grimaldo also noted that the increased competitive pressure on the laboring pair could start coming from below.
“They’re going to feel the pressure of the rollout of Leap Wireless and MetroPCS,” she said.
Leap Wireless International Inc. and MetroPCS Communications Inc. recently announced plans to expand their respective footprints through a reciprocal roaming agreement that will allow the carriers to offer much broader coverage to their customers. This could be especially troublesome as their target market is similar to the prepaid segment that has been one of the few bright spots for both Sprint Nextel and T-Mobile USA.
Overall, Welsh de Grimaldo said it’s a bit too early to say that T-Mobile USA is in big trouble, as Sprint Nextel may be. The carrier has learned a lot from its parent company and has picked a good customer segment to target, she said.
November 16, 2008 06:47 pm
What it is really interesting that the only really global company is T-Mobile, which unlike AT&T has its own networks in Europe. But the gem is AMERICA MOBIL (branded as CLARO), the Mexican wireless company, with presence in more than 20 countries and almost 200 million customers. Competing, head to head with MOVISTAR with presence in 2 continents like T-Mobile. I don't understand why T-Mobile does not advertise its global presence.
November 11, 2008 04:51 pm
RB.... I was a "former" Sprint employee (pre-merger) thank god!!! All I remember of Sprint before they purchased Nextel was the longest string of record breaking quarters for new customer additions that the wireless indusrty has ever seen. It seems to me that the majority of their problems did not begin until they purchased Nextel. I agree that Sprint has not done everything right, especially since the merger. But as an unbiased third party I am honestly getting tiered of "mostly Legacy Nextel" employees bashing Sprint and accusing them of ruining the Nextel business. I believe that Nextel was dying well before Sprint purchased them. That's just one mans opinion though!
November 11, 2008 06:01 am
It's hard to debate the quality of networks b/c of our own strong personal biases and experiences, and third party studies are obscure and have lots of small print. The reality is that each network has its strengths, and phone type and plans are often even bigger drivers of choice. I think carriers who focus on the growth segment, prepaid will see the greatest growth. Also, the prepaid broadband market is heating up!Cheers,PrepaidWirelessGuywww.prepaid-wireless-guide.com/why-prepaid-wireless.htmlwww.prepaid-wireless-guide.com/prepaid-wireless-internet.html
November 10, 2008 01:12 pm
NPK - except for your Public Safety comment, I disagree with everything you've said. The CDMA network is great but they don't market it nor do they market their iDEN Network. I prodominately work with Public Safetly officials, all of whom used to have Nextel's and most of them are no longer Sprint/Nextel customers and NOT becuase no one told them which network was better but because they saw for themselves, in emergency situations, Sprint/Nextel just doesn't work. And Nextel WAS doing so much better and on the rise until they came to a screetching halt when that meger contract was signed.
November 10, 2008 01:12 pm
Telco Pro - right you are, I stand corrected. Xohm...apparently Baltimore is the only hotspot they wanted. Sprint/Nextel is like a little kid, starting something until they grow bored with it and then looking in another direction. At this point, since they are so far behind, they can't possibly think of new, innovative products and services when they can't even catch up with all the other Wireless Carriers.
November 10, 2008 01:12 pm
I strongly disagree with the reasoning of RB above. Nextel was not in good shape when Sprint bought them, and the internal struggles resulting from the merger have been the biggest problems at Sprint. We have the best CDMA network in the country, but we do't advertise it properly. That, and our finally improving customer service have hurt us. We have a country of sheeple, and they believe whatever they hear in the media, so util we start telling people how much better our CDMA metwork is, they'll continue to flock to the other carriers. iDEN is not a good consumer product, and would be best suited to be marketed to public safety.
November 10, 2008 01:12 pm
Your comments are spot on. You left out Xohm, mistake #8. Two years of fiddle-farting around and all the Xohm team could muster is one scaled back test market launched in Baltimore.
November 10, 2008 01:12 pm
Sprint/Nextel is losing customers by the boatload and to sit there and say it’s because of AT&T’s 3G iPhone is ridiculous. It may have helped but it is certainly not the reason why subscribers are running in the other direction. Let’s analyze this for a second and place the blame where it truly lies. Nextel doing great, marketing to many businesses, subscriber numbers on the rise. AT&T and Cingular join forces to become a cellular giant. Sprint and Nextel do the same because all of a sudden, Nextel just isn’t good enough (or so they so ignorantly thought). Mistake #1 (and biggest). Now Sprint/Nextel, they place all their power and money into the Sprint CDMA Network and nothing into the iDEN Network. Mistake #2. Then they discontinue marketing campaigns to businesses for the iDEN Network and focus all their attention on the new generation who only care about Ringtones, cool looking phones and internet capabilities, all of whom can’t even pay their bills. Mistake #3. Sprint/Nextel never addressed, until recently, the whole uncertainty of the iDEN Network. AT&T has been pounding on people’s doors and successfully getting them to switch over, using nothing but lies to gain new subscribers. Best and most convincing lie: The iDEN Network is going away and all of you who rely on the Direct Connect will be screwed. Mistake #4. Extremely slow to market is their new and innovative handsets. Sprint/Nextel has a great line of handsets and the data network to make it work well but it’s too late. Sprint/Nextel faces issues and only when it’s too late, do they address them. Mistake #5. Internally, they have probably the worst group of employees and this is on all levels of both Management and Entry-Level employees. They are lazy and just plain stupid when it comes to new things and customer service. They force out the ones who are trying to make improvements and keeping the old, money wasting, space consuming employees who are unable to give anything back to the company. Mistake #6. The one great thing they had, an unlimited Broadband card, not caps at 5GB. Mistake #7. You only need to look where they’ve been to see where they’ll go.