Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
Sprint Nextel is the third tier-one carrier set to release its earnings and performance metrics, scheduled for Oct. 25. The company is in the midst of a turnaround cycle. For the most part it is succeeding as evidenced by customer service, churn decline and postpaid growth (on the CDMA/LTE platform). This turnaround story is in part what drew the Oct. 15 SoftBank $20 billion acquisition. While the deal isn’t expected to close until next year, Sprint Nextel ahead of this earnings call has moved to acquire controlling interest in Clearwire as a foundation for the ”new” Sprint Nextel’s future plans. Regardless of the good news for Sprint Nextel, its meat and potatoes operations either support its continued the turnaround trend or present areas of challenge.
Net additions: On a macro view, the overall net additions are in the positive range largely due to the strength of Sprint Nextel’s prepaid strategy and wholesale business. The number of mobile virtual network operators using the Sprint Nextel platform has been a welcomed component in driving net additions. On the postpaid side, there are two stories that newcomers need to focus on. One is the iDEN side, which has been bleeding subscribers for a couple of years. There’s no secret that the iDEN network will cease in mid-2013, the thrust is to retain the remaining 4.4 million iDEN (as of Q2 2012) customers of which 3.1 million are postpaid. It stands to reason that the remaining iDEN subscribers are a loyal base that depend on the push-to-talk function and have it well integrated in its operations. They’re the candidates to migrate to the CDMA-based Direct Connect. However, Verizon Wireless and AT&T Mobility have been very aggressive in courting these customers throughout the years. In Q2, Sprint Nextel presented a 60% iDEN subscriber recapture rate, the expectation should be that percentage should increase. Losses from its iDEN operations amounted to under one million in Q2, of which over two-thirds were postpaid. Sprint Nextel has warned that these losses will pick up towards iDEN’s end of life. What will Q3 hold in total iDEN losses and most importantly, the recapture message?
It’s clear that the CDMA/LTE platform will continue to be positive. The upswing in its Q2 442,000 postpaid net additions were largely helped by the 1.5 million iPhone gross adds, which brought in switchers (40% new to Sprint Nextel). Observers will continue to pay attention to the iPhone numbers that should manifest itself partly in churn and postpaid net adds. With its unlimited proposition and a Sprint Nextel LTE iPhone, will 40% stay flat or increase?
On the prepaid front, the Assurance growth engine (as well as other companies with similar offerings like Tracfone’s Safelink) had been impacted with the Federal Communications Commission’s modernizing of the Lifeline program in Q2. Will this continue to impact Q3 results?
A big bet in prepaid was the introduction of the iPhone at Virgin Mobile. However Sprint Nextel did not provide the granularity of prepaid versus postpaid iPhone activations. It’d be nice to understand the Boost and Virgin Mobile brand’s contribution to the prepaid story.
Churn: From a trend view, Sprint Nextel is definitely turning around. Though the postpaid figures incorporate the iDEN bleeding, the results have been good. For the CDMA/LTE platform (Q2: 1.69%; Q1: 2%), it has offset iDEN figures well (Q2: 2.56%; Q1: 2.09%). To follow a turnaround story that incorporates the anti-churn tool (iPhone), one hopes that the CDMA/LTE platform percentage to continue to decline. Will it break 1.5%?
Similarly on the prepaid side, the trend looks decent, but detail needs to be examined on the CDMA/LTE platform figures for Q3. As a reference gauge with Q2/Q1 numbers, the CDMA/LTE platform reported 3.16%/2.92% while the iDEN side came in with 7.18%/8.73%. Prepaid churn is tough as it’s the nature of the offering, but sticky products and decreased trending help the cause.
ARPU: Sprint Nextel’s approximately $61 postpaid average revenue per user mark follows only AT&T Mobility. With AT&T Mobility just increasing to $65.20 in Q3, the expectation for Sprint Nextel is to cross $61 given Sprint Nextel’s sharp growth slope.
Prepaid ARPU (Q2: $26.59; Q1: $26.82) is trending down partly as the result of possible dilution associated with lower ARPU bearing Assurance customers. Logically, as those customers increase in number, it offsets the higher-ARPU bearing Boost and Virgin Mobile Beyond Talk subscribers. However, Sprint Nextel executives have always touted the low-churn aspect of Assurance users along with low acquisition costs. Therefore, they argue, Assurance users are a stable profit in the long term.
Bill Ho is an independent industry analyst with over 20 years in telecommunications space and over 7 years in the mobile sector. Recognized as an industry expert, he has been quoted in wireless trade publications as well as mainstream media. Ho’s coverage includes the U.S. carrier community and device players with a specific focus on competitive positioning.