Sprint talks about price increases as customer count and network improve

Sprint Corp., buoyed by surprising customer gains and confident in its improving network, is talking about raising prices.

CEO Marcelo Claure promised an end to the company’s long-running half-off rate plan promotion “in the not-so-distant future.” Sprint has been forced to compete with lower prices than its rivals because of a weaker network, but Claure said that is changing.

His comments came Monday as the Overland Park-based wireless carrier released its latest financial report and said it gained customers in the second quarter at the expense of all three of its national rivals.

The news caught Wall Street by surprise, and investors bid up Sprint shares by $1.28 to $5.908, a 27.71 percent gain.

Investors looked past Sprint’s net loss that totaled $302 million, or 8 cents a share, during April, May and June. A year earlier, the company lost $20 million, or 1 cent a share, in the months that make up the first quarter of its fiscal year. Revenues were $8 billion, nearly equal with a year ago.

Wall Street focused on Sprint’s customer gains — 377,000 subscribers in the second quarter, including 173,000 of the most sought-after high-revenue phone customers.

These are called post-paid phone subscribers in the industry. It distinguishes them from prepaid phone customers who don’t undergo a credit check, pay for service in advance of using it and generate less revenue for phone companies.

Sprint ended June with 59.453 million subscribers, still fourth among national carriers but up from 56.812 million a year ago.

Adding the 173,000 post-paid phone customers marked Sprint’s best showing in that category in nine years. More to the point, Sprint said it took more high-value customers away from Verizon, AT&T and T-Mobile US than each of them took from Sprint.

T-Mobile CEO John Legere, in a tweet Monday, questioned Claure’s claim that Sprint was winning the customer tug of war with T-Mobile.

T-Mobile reports its results Wednesday. Verizon reports Tuesday. AT&T already reported that it lost post-paid phone subscribers in the quarter.

For more than a year, Sprint has lured Verizon and AT&T customers by offering the same wireless rate plans its rivals offer but for half the price. It expanded the offer to T-Mobile customers last fall.

Claure told analysts Monday that Sprint won’t need to rely on the the half-off promotion always.

“The 50 percent off promotion is not going to go on forever,” Claure said during a conference call. “There will be a time in the not-so-distant future in which we’re going to go back to traditional rate plans.”

He said the company is testing rate plans now.

Sprint’s strategy is that customers will accept higher prices as their perception of the Sprint network catches up to its performance. Sprint’s ads promote its network’s performance as nearly matching its rivals’ networks, particularly industry leader Verizon.

Sprint is still crowing about hiring former Verizon pitchman Paul Marcarelli, who starred in Verizon’s “Can you hear me now?” ads, to star in Sprint’s new advertising. Sprint released the second such ad Monday.

Analysts credited Sprint for its customer gains but questioned the company’s investment in its network during the recent quarter. Mike McCormack at Jefferies said it was “surprisingly low,” and Jennifer Fritzsche at Wells Fargo Securities said the amount was “below what many believe to be maintenance” levels for network investment.

Fritzsche, however, said Sprint’s post-paid customer gains and its ability to keep existing customers show that “the turnaround story is taking shape.”

Sprint has said its network upgrades rely on gaining permits to add small cell sites on buildings and light poles. It invests when the permits clear and where each dollar will have the greatest impact on network performance.

In the prepaid wireless competition, Sprint is losing ground. It lost 331,000 prepaid customers in the second quarter in what has become an increasingly competitive market.

Claure said its Boost Mobile brand is doing well but promised a “new value proposition” starting Sept. 1.

Sprint’s lagging Virgin Mobile USA brand has gotten its own CEO and is getting its own headquarters in Kansas City, away from Sprint’s Overland Park headquarters campus.

This story was originally published July 25, 2016 at 7:01 AM with the headline "Sprint talks about price increases as customer count and network improve."