The news for Sprint is mixed this week. Analyst Walter Piecyk estimates Palm is selling 25,000 Pre phones a week, but argues it could sell more if only it would advertise more. The company is also preparing to offer an Android phone later this year “now [that] it’s ready for prime time.”
This week Sprint announced it is buying out Virgin Mobile — according to Wikipedia (if you believe that) the 2nd largest MVNO in the US after TracFone. The acquisition gives means that it will be be able to consolidate its revenues to the bottom line and gain full control of about 11% of the subscribers on its network.
One problem for Sprint is that Virgin is selling because the prepaid market is only going to get more brutal. (The Virgin Group owns 28.3% of Virgin Mobile and SK Telecom owns 15%). On Thursday, MetroPCS cut its unlimited price plan by $5/month, putting additional pressure on Virgin and Boost (Sprint’s existing prepaid brand).
Even if prepaid is the highest growth part of the market, it’s also the lowest margin. As the FT noted:
Average revenue per [prepaid] user is just $34 monthly versus $56 for post-paid customers and all-important "churn" or turnover was 6.4 per cent versus 2.1 per cent for those locked into contracts.Of course, the worst news of all is that Sprint continues to lose money and customers. Its quarterly loss widened to $384 million, and it lost 991,000 prepaid customers during the quarter. With new prepaid customers, it only lost 257,000 customers overall — but AT&T Wireless added 1.4 million and Verizon Wireless 1.1 million.
Unstrung columnist Dan Jones is calling for CEO Dan Hesse’s head (attributing the idea to “restless” investors). As he notes, the company has yet to fix the problems that got Hesse’s successor fired, and the stock is down almost 80% in two years.
So in the end, despite the Pre exclusive and its aggressive pricing, Sprint has been unable to stop the loss on the income statement, subscribers or market cap. The company is trying all the customary approaches to saving money and they aren’t enough. Unless it can do something to get more high margin customers — of the sort keeping AT&T and Verizon alive — I don’t see what will end the hemorrhaging.