Keith Chrostowski: Sprint’s biggest challenge: Unsticking users from Verizon and AT&T

08/18/2014 7:56 PM

09/01/2014 11:18 PM

In dashing Sprint’s hopes to merge with T-Mobile, did Washington regulators cement Verizon and AT&T’s dominance of the wireless market?

Or do they think a slugfest between Sprint and T-Mobile will ignite a price war that engulfs Verizon and AT&T and helps all consumers?

Even a couple of weeks later, the end of Sprint’s possible $32 billion bid for T-Mobile remains a stunner.

Masayoshi Son, the head of SoftBank, Sprint’s owner, had spent months wooing regulators. But when he recognized a brick wall, he decided not to beat his head against it and moved with alacrity — killing the merger and replacing CEO Dan Hesse with a dynamic outsider, Marcelo Claure.

Regulators probably did Sprint a favor. A merger was a long-term strategic play to add scale to compete with the big two carriers. But now Sprint can focus on fully ramping up its new superfast Spark network and adding customers.

It does appear that Hesse, to his credit, positioned the company to make gains in the short term. Now it’s up to Claure to pick up the pace.

Dawn Chmielewski, who covers digital media computing for the tech blog Re/code, offered up four recommendations.

“Cut the price of service.”

Hesse had been lining up new pricing options, probably with Claure’s input because he’s been on Sprint’s board since January.

On his appointment, Claure plunged into battle promising the quick arrival of “disruptive” pricing plans, and last week Sprint rolled out a new service plan for businesses.

On Monday, Sprint announced a new everyday pricing plan for consumers that doubled the amount of data they could buy versus comparably priced Verizon, AT&T and T-Mobile plans and promotions. It also retired the “Framily” concept so consumers could make easier comparisons with competitors’ plans. It’s calling its new plan, simply, the Sprint Family Share Pack.

And on Tuesday, Sprint is expected to announce it is teaming up with Sharp to offer low-cost smartphones, starting with the Aquos Crystal, which has an edgeless display.

The moves are apparently Sprint’s first shots in that pricing war. How far will Claure escalate?

“Stop the bleeding.”

During the upgrade to Spark, dropped calls made many customers drop Sprint. Now Sprint needs a breakthrough marketing campaign bringing the soon-to-be completed Spark to everybody’s attention.

Will a brand new marketing plan centered on the upgraded network keep subscribers?

“Convince Chairman Masayoshi Son to break out the checkbook.”

Sprint must continue investing in its network to keep up. Verizon Wireless CEO Daniel S. Mead, Chmielewski pointed out, estimates that the industry invests roughly $35 billion a year on infrastructure, and says Verizon spends around $16 billion annually.

Claure was handpicked by Son, and SoftBank is flush, but will that translate to adequate resources? Especially in light of the next point?

“Get other costs under control.”

Both Son and Claure have said several times that Sprint will be lowering expenses. “We will focus on becoming extremely cost-efficient and competing aggressively in the marketplace,” Claure said.

Sprint will have to do so while at the same time pouring money into its network, and it will have to get the cash for that somewhere.

Claure’s use of the word “extremely” should make Sprint employees nervous. How many jobs with he cut?

Those issues aside, Claure himself put his finger on what’s really Sprint’s biggest strategic challenge: “We need everyone who is looking to re-up with their current carrier to give Sprint a good, hard look before doing so.”

To do that, Sprint must loosen up the wireless industry’s notorious “stickiness” — once customers choose a carrier, they tend to stay with it. You can improve your network, cut prices and expenses and all that, but how will the new Sprint persuade customers to switch carriers?

The “Framily” plan rolled out in January — getting customers to recruit other friends and family members — was Sprint’s most-visible attempt to sway switchers.

But at the 40-minute mark in a news conference following SoftBank’s Aug. 8 earnings report, Son signaled its demise: “We are internally divided over the Framily pricing plan. It’s not easy to understand for consumers the benefit of Framily. But Framily was not strong enough to acquire a lot of customers.”

It seems that replacing Framily with something more effective was one of Claure’s top must-do items and explains Monday’s unveiling of the Share Pack. Along those lines Sprint also announced that it will now cover other carriers’ early termination fees, as T-Mobile has for a while now.

But Claure also certainly realizes getting consumers to switch to Sprint is just one front in a hard battle. The war will be won by convincing many more consumers to make Sprint their choice when they buy their first phone.

So look for Claure to skew Sprint’s sales pitch to younger people and immigrants. The number of younger people rolling off their parents’ wireless plans and immigrants moving into the country every year is huge.

A campaign aimed at them would be a marked contrast to those odd Framily commercials. (“It’s Gor-don.”)

Get young consumers and immigrants, and then let stickiness work in Sprint’s favor.

To reach Keith Chrostowski, business editor of The Star, call 816-234-4466 or send email to chrostowski@kcstar.com. Twitter: @keithc3

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