Sprint reports a profit despite subscriber losses and ponders price cuts
07/30/2014 6:56 AM
07/30/2014 9:39 PM
After reporting a rare quarterly profit Wednesday, Sprint is planning to cut prices.
The move would hurt the company’s already strained pocketbook. But it wants to halt greater damage from subscriber defections, which continued through June even as rival carriers added customers.
Sprint announced it was reviewing prices after earning a $23 million profit but losing 334,000 customers in the second quarter.
The Overland Park-based wireless phone company has seen rivals T-Mobile US and AT&T aggressively slash prices and improve their customer counts.
Sprint is testing various pricing changes, including plans that would deviate from its widely marketed unlimited data plans. It may add plans that tie phone bills to how much data a customer uses.
The review comes as Sprint has fallen behind in the marketplace.
Sprint’s last big price move came in January when it launched the Framily discount plan. The plan cuts subscribers’ bills for bringing new customers to the company’s network.
“Framily was quite competitive at that time. It’s become less competitive at certain line levels,” Sprint chief executive Dan Hesse said during a conference call with analysts. “We may need to make some adjustments to our pricing levels based on what we learn.”
That’s too modest for Berge Ayvazian, an industry consultant at HeavyReading.com, who said Sprint needs to go on the offensive in the face of the changes at T-Mobile and AT&T.
“If you want to be more aggressive, you’ve got to be bold, you’ve got to take big risks. They’re not taking that big risk,” Ayvazian said.
The company’s quarterly business update Wednesday showed that it continued to shed customers while Verizon and AT&T reported subscriber gains. T-Mobile, which reports today, is expected to announce customer gains as well.
Sprint’s 334,000 subscriber losses left the No. 3 carrier with 54.55 million customers at the end of June. The subscriber losses came both from its most valuable customers who sign contracts and its lower-revenue customers who buy service month to month.
Cost-cutting measures helped the company report a $23 million net profit for the three months that ended June 30, compared with a $1.7 billion loss a year ago.
The current profit came to only 1 penny per share of Sprint stock and amounted to breaking even on the nearly $8.8 billion worth of business the company did during the quarter.
It was only the second quarterly profit since Hesse became chief executive in late 2007 when the company was lurching badly. Since then, the company has improved its customer service substantially and recently completed a total upgrade of its wireless network.
Service disruptions from the network upgrade caused a surge in customer departures over the last year, Sprint executives have said. The upgrade work is now largely complete, and outsiders look for the company to become more aggressive in pursuing subscribers.
Hesse said the pricing tests include service plans that would not provide unlimited data. Unlimited gives customers streaming video and music, Facebook time and other popular smartphone features for one price.
AT&T and Verizon, the two largest carriers, instead offer plans that charge more for using more data, in a sense putting data use on a meter. Metering offers one advantage for the companies — their revenues will climb as consumers increasingly consume data with their smartphones’ features.
Hesse said Sprint, which turned to unlimited pricing as a competitive pitch, won’t abandon the feature.
“I would be very surprised if we did not continue to have unlimited offers in addition to, well, say, metered offers because that is a differentiator for Sprint. It’s a place where we really stand out,” Hesse said.
Investors and competitors alike are waiting to see how aggressive Sprint gets with any pricing changes. Promises of a price war have come from Sprint’s chairman, Masayoshi Son. Son founded SoftBank, the Tokyo company that bought control of Sprint last year.
Son has attached the price war promise to approval of a merger with T-Mobile. Sprint is expected to make a bid for T-Mobile but faces likely opposition from regulators in Washington who have said they prefer having four large national wireless competitors to having only three.
Son has campaigned for a merger, saying that a stronger No. 3 carrier would be a stronger competitor to No. 1 Verizon and No. 2 AT&T.
Some reports say Sprint’s bid for T-Mobile, once considered imminent, may wait perhaps until September. Sprint officials steadfastly decline to talk about any plans to combine with the rival carrier.
AT&T had drawn scrutiny with changes it made earlier this year that allowed many of its existing subscribers to reduce their bills.
That won’t happen at Sprint, chief financial officer Joe Euteneuer told The Star on Wednesday.
“Obviously, we don’t want to reprice our (subscriber) base,” Euteneuer said.
For example, the Framily discount plan that began in January makes it difficult for an existing Sprint customer to gain the discounts by adding other existing customers to his Framily. The aim of Framily is to get customers to attract new customers.
Pricing changes also will be aimed at attracting new customers.
“We’ve done a good job of not reacting to some of the competitive craziness … and using a disciplined approach to try to find things the consumer would want,” Euteneuer said.
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