So, now what for Sprint Nextel Corp. (S)?
Just after releasing second-quarter results that showed improvements in customer metrics at the cost of subsidizing the growing fascination with smartphones, and a spectrum-hosting deal that could pay the carrier $9 billion over an 11-year period, the carrier’s stock got hammered by investors. And being a company already questioned for its competitive position in the space, it looks like investor concerns are growing.
(That stock hit pushed Sprint Nextel’s market capitalization down to around $13 billion, or about 30% more than what Verizon Wireless said it plans to “distribute” to its parent companies early next year.)
Sprint Nextel remains in that precarious position of being too big to just blame any sort of operational hiccup on not having scale, and being not big enough to really compete with larger rivals Verizon Wireless (VZ) and AT&T Mobility (T). The carrier on the surface has a lot going for it in that it has a nationwide network that is being revamped with the latest equipment as we speak; a broad spectrum portfolio; and marketing efforts in the rapidly growing prepaid space that appear to be gaining traction with consumers. However, Sprint Nextel is still reeling from past decisions that have crippled its current operations, including the ill-advised acquisition of Nextel Communications Inc. and trying to cut costs with past customer-care initiatives and network updates.
(On the matter of Nextel, I only say this was ill-advised in that Sprint acquired Nextel at what was really a high point in Nextel’s valuation and that it seemed to have overlooked the difficulty in trying to operate two networks. In Sprint’s defense, the carrier did pick up a lot of spectrum in the deal that is now part of its strength and gained a direct line into the lucrative enterprise and public-safety markets.)
Now, just because the carrier’s stock hit the skids does not mean everyone has lost hope in the carrier. Wells Fargo Securities L.L.C. reiterated its “outperform” rating for Sprint Nextel’s stock, which is probably not a bad call for a stock that seems to have been hammered. While admitting to the carrier’s current operating issues – even going so far as to note “it is always interesting,” – the firm said that the expected network initiatives Sprint Nextel is scheduled to elaborate on in early October could provide a needed boost in stability.
But, will this be enough in the short term? The mobile space is not sitting still with competition continuing to come at Sprint Nextel from above and below. It would be one thing if Sprint Nextel CEO Dan Hesse could just call a 12-month timeout in order to facilitate the changes on deck, but unfortunately things don’t work that way and Sprint Nextel will have to somehow manage to keep juggling multiple priorities without letting any of them falter.
And speaking of competition in the mobile space, all of this concern regarding what impact AT&T’s potential acquisition of T-Mobile USA Inc. might have seems to be overlooking the fact that despite the best efforts of AT&T Mobility and cries of a current duopoly, second-quarter results are showing an increasing move in the industry to Verizon Wireless becoming virtually a monopoly. This is an idea offered this week by RCR Wireless News columnist Jim Patterson, who noted that through the first half of this year Verizon Wireless has attracted six net customer additions for everyone one attracted by AT&T Mobility, and these two operators have represented virtually all of the postpaid net additions for the industry over that same time frame.
“We have moved past the discussion of a duopoly – it’s now becoming a monopoly in postpaid,” Patterson states.
This could provide a new challenge for Sprint Nextel in its vocal attempts to keep AT&T from acquiring T-Mobile USA as such a deal looks (on the surface at least) to be the only way for there to be at least one strong competitor to Verizon Wireless.
So where does this leave Sprint Nextel? Well, the carrier looks like it will need to keep trying to tread water for a few more years as it works through its network upgrade plans. It must hope that those plans do not impact network quality in a way that led to the mass defection of Nextel’s iDEN customers, which is still hitting the carrier’s bottom line. And it must somehow continue to fine tune its operating model so that the growth it’s experiencing in the prepaid space can somehow help offset the additional costs it’s experiencing for its postpaid operations.
A tough task indeed.
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