In an exclusive interview with RCR Wireless News, Sprint Nextel Corp. CEO Dan Hesse discusses pricing plans, unlimited service options, iDEN network capacity, the forthcoming Palm Pre, planned job cuts and network outsourcing.
RCR: Can you provide some information on what’s going on with Sprint Nextel and wireless pricing overall?
Hesse: I saw your coverage last week and there was some general industry coverage that I thought was a little confusing with respect to what we’re doing in the market, so I think with RCR being such a well respected industry reporter it might be a good opportunity to chat with you about it because I think its important to understand the distinction between prepaid and postpaid and the way that we view those markets is really quite separate. There were some things written that implied, didn’t come right out and say it, but implied that there was a price war, that Sprint was waging or might be waging and that’s not really the case.
In the postpaid world, we came out and we really focused on value. As a matter of fact if there has been a criticism of Sprint, it has been that we are focused so up market in terms of, for example Simply Everything, high ARPU. For customers that want more than just voice we do provide very good value for customers that want to use the strength of our 3G network, our Now network, unlimited texting, and unlimited voice. It’s been a full year since we really made any significant changes to our rate card. It’s been a long time. And right now, knock on wood; we see very little reason to adjust it.
A year ago, we provided a lot of value and I think the issue is perhaps the value that we created in the market a year ago is beginning perhaps to get more traction. Now that customers are more value conscious than they were a year ago, but it’s not that we’re changing our pricing. That being said, we did crisp up our family plans a bit back in June and brought the same level of value and simplicity to family plans that we had brought to the rest of our rate card back in February of last year, and as you pointed out in RCR, we did come out with a new bundle where we reduced the price down from $160 a month to $150 a month if you have both Simply Everything and an air card. That was new, but I would hardly classify that as a price war.
RCR: Price wars seem to come about when prices change, and even if Sprint Nextel isn’t initiating that, it did launch the $50 Boost unlimited plan which is maybe making competitors shake in their boots and think “maybe we have to offer the plan at $50.”
Hesse: In the prepaid segment in the U.S., it’s a fairly small part of the market, about 13%. Less than 15% of the U.S. wireless market is prepaid. In this environment we see an opportunity in the prepaid market because of credit and predictability and no contracts. Of course the down side is customers pay more for their phone. From an economic perspective and from a wireless perspective there are benefits in terms of lower acquisition costs associated with prepaid. In that market, that part of it is accurate that we see some real value in our network. We had an iDEN network and a lot of additional spare capacity on it because unfortunately, to be honest with you, we’ve lost subscribers on the iDEN network. First and foremost we want to make sure that we provide a great customer experience on the iDEN network. Our network’s performing at its best levels ever and we want to make sure we maintain that, and we will. But where we do have the ability to bring new customers onto that network, where we have a built out network and we can do it at low acquisition costs, it makes good economic sense for Sprint to do so.
RCR: What was the main reason behind the switch of Boost to iDEN? Were there capacity issues on the CDMA network?
Hesse: No, but on the CDMA network, as you add more customers you have to invest in additional capacity, which by the way is not negative. That’s normal when wireless adds subscribers. But we had this iDEN asset over here, so why would we continue to spend additional capacity on the CDMA network to add all these customers to CDMA? It’s a good thing, but why don’t we just offer it on iDEN because we already have the capacity built out? It’s already invested; it’s sitting there. The decision to put it on iDEN was because we had spare capacity on the iDEN network. We didn’t have spare capacity on the CDMA network. That’s really where our subscriber losses have largely been, on the iDEN network the last few years. It was an economic decision.
The other benefit in terms of the iDEN network and using it is there’s no roaming, in terms of the pricing difference between that and the postpaid rate card. There are a lot of things that are different about them. Even though we have a large iDEN network, still from an economic perspective at Sprint we don’t offer roaming with other carriers because frankly there isn’t another iDEN carrier anyway. But we can provide great coverage, nationwide coverage. We have a very large voice footprint, but from an economic perspective that’s another thing that makes it different from the economics of postpaid.
RCR: Industry analysts have been speculating that moving Boost to iDEN provides an additional incentive because of the fact with iDEN’s rarity; customers have a harder time leaving the network once they sign up and purchase a handset.
Hesse: Absolutely. The analyst is wise.
RCR: After looking at earnings recently and over the past year you can’t be happy with the churn and Sprint is trying to turn that round. I assume the Boost unlimited plan is a big part of that initiative?
Hesse: It’s part of getting the company back to growth. We’ve made a lot of progress. As we mentioned on the earnings call we were the only one of the big four national carriers to actually improve churn year over year, and I’m talking about postpaid churn. A year ago we were in fourth place, in the third quarter we moved ahead of T-Mobile in churn and maintained that in the fourth quarter. We were the only national carrier that actually showed better net add performance sequentially in the fourth quarter versus the third quarter of last year, albeit not great performance, but still improving. We’re making a lot of progress, but to get back to growth we really have not focused on the prepaid market and given the economic changes that the country has gone through, there’s a great opportunity there. What we’re doing is we’re seizing on that opportunity and we have a tremendous asset, the iDEN network, that can be used very effectively to bring on these customers who are more interested in a prepaid offer than in long term contracts and for the other reasons whether it be handsets or roaming. It makes very good economic sense for Sprint and gives us an opportunity to grow.
RCR: So basically Sprint is providing two options for two sets of customers. If someone wants high data use, they can go with Simply Everything and those not so concerned with data can sign up for the Boost plan?
Hesse: Part of what Sprint’s brand is to stand for is value and simplicity. So both are a good deal, but also having it be simple so there’s not a lot of fees and charges. For the customer who does a lot of data, 3G, and who wants a better selection of phones and roaming on voice, you’re right. We have Simply Everything on CDMA, and in the prepaid market Boost National monthly unlimited for customers that are looking for something different, but what’s consistent is this focus on simplicity, being straightforward and value.
RCR: Speaking of handset selection, let’s talk about the Palm Pre. How long will Sprint Nextel have exclusivity on the new device?
Hesse: We haven’t commented on how long the exclusivity period lasts. Palm and Sprint have agreed that we won’t comment on that.
RCR: Is there a scheduled release date?
Hesse: We haven’t announced that. The plan of both companies is to have it on the market in the first half of the year. Obviously when you’re bringing out a new device with this level of sophistication and functionality, there’s a lot of work required. The guys at Palm are working 24/7 and we’re working 24/7 to bring it out as soon as we can, but we’re not going to bring it out until we’re really confident that the launch is going to be really successful in terms of how it operates. Of course to be able to produce the devices we want to make sure that there’s enough. Clearly it’s going to be a device that’s going to be in high demand and it is going to be in shortage no matter when we launch it, but we don’t want it to be too early where there’s only a handful of Pres in the whole country. We want to make sure that we can also have production ramped up at a reasonable level before we launch the product. There are a lot of variables that go into when we’re going to launch it. But both Sprint and Palm are very focused on launching as soon as we can and our target is to launch in the first half. There are also no price details yet.
RCR: You recently announced that Sprint Nextel would cut 8,000 jobs. Are there any more job cuts planned?
Hesse: Our current plan is that that should be sufficient, the 8,000. There will be some non-employee reduction as the year continues. For example, in 2008 we were able to stop using 11 vended call centers even though we improved service levels by reducing the reasons customers had to call customer care. We would hope that in 2009 as we continue to provide higher quality service we’ll have fewer calls coming into customer care and as that happens use fewer external call centers. So, there will be additional labor savings going forward in 2009 that are not part of that 8,000. But the 8,000 is the only thing that is currently planned for Sprint employees.
RCR: Have those cuts begun?
Hesse: They have and our expectation is that they would be largely, not completely, but largely completed by the end of the first quarter of this year.
RCR: Can you comment on the speculation that Sprint Nextel may be outsourcing its network operations?
Hesse: No, nothing I can comment on. We continue to and always have, last year as well, evaluate alternatives that make service and economic sense for the company, but there’s nothing to announce yet. No decisions have been reached.
