One number sums up why Sprint Corp. doesn’t work: $15.80.
That’s how much the nation’s No. 3 wireless company spends per customer each month to run its nationwide wireless network.
No. 1 Verizon gets the job done each month for a mere $6.80 a head. No. 2 AT&T for $9.40.
The two wireless giants benefit from having so many more customers to shoulder the costs of running their networks. Each has more than twice as many as Sprint.
That fundamental difference helps explain why No. 3 Sprint struggles to attract and keep customers. It couldn’t afford to build out or quickly improve its network, leaving too many customers with slow smartphones and dropped calls.
Little wonder Sprint has turned only one quarterly profit in the last six years.
Sprint officials acknowledge the network shortcomings and say they have kept Sprint somewhat on the sidelines in the battle for subscribers. But they’ve also worked diligently on closing the gap and say they’re ready to start winning customers again.
Sprint has reached a decisive moment in its sometimes troubled life. The steps it takes in the next 12 months will forever change what Sprint is, how successful it can be and what it means to Kansas City.
Sprint was born here in 1986. It’s one of the largest local employers. It does business with other local companies, invites entrepreneurs to its technology development centers and fills a vital role as a leading corporate citizen.
The choices it makes will be difficult — touching its brand, its leadership and corporate identity — maybe in ways we won’t like.
For its part, Sprint has taken aim at its chief flaws. It strives to overcome being small, to stop losing ground to rivals and to quit playing catch-up in the network wars.
It has gotten tired of hearing customers like Ron Meyers of Overland Park complain about bad service, even in the company’s home territory. Meyers routinely compared his experience with his friends’ service at other wireless companies as the group traveled to estate sales.
“I’ll lose connection, and they do not lose connection,” Meyers said.
He also complains about dropped calls at home, which is just 5 miles from Sprint’s U.S. headquarters campus. When his Sprint contract expired earlier this month, Meyers switched to Verizon.
Sprint’s hope is to shrug off its shortcomings, first with a potentially dicey run at buying and merging with the No. 4 wireless company, T-Mobile US Inc. The much anticipated bid is reportedly worth $32 billion.
A merger with the German-owned and newly energized T-Mobile would add 49 million customers to Sprint’s base and help it start driving down that $15.80-per-customer network cost. (At $14.90, T-Mobile already spends almost a dollar less per customer running its network.)
News of a deal could come this month and finally validate years of predictions that these companies would try to combine.
Equally audacious is Sprint’s megabillions effort to turn its lagging network into the nation’s best by deploying wireless technology no other U.S. carrier has tried. It is wrapping up an extensive “rip and replace” upgrade of old equipment that makes the next push possible.
Sprint’s emerging efforts aim at breaking up the wireless industry’s “duopoly” — the company’s word for the dominating role played by Verizon and AT&T.
If that sounds like a different Sprint, it is.
A year ago, the Japan-based conglomerate SoftBank Corp. won a bidding war and now owns 80 percent of Sprint.
“We are a ‘controlled company,’” Sprint’s annual report said.
New ownership has stabilized Sprint’s finances. But the company’s ambitions are now set by SoftBank founder Masayoshi Son rather than chief executive Dan Hesse.
Son, a billionaire businessman newly named chairman of Sprint, has made clear that Sprint doesn’t work, at least not well enough for him. He has charged that Sprint got “used to being a loser.” He has acknowledged failings in Sprint’s effort to match rivals’ faster 4G service using LTE, or Long Term Evolution, technology.
At a conference in May, tech guru Walt Mossberg complained to Son that he could barely get a Sprint LTE signal in many cities.
“I totally agree,” Son replied. “Yes, I know. I only own the company for six months.”
Hesse, who is in the middle of the company’s network overhaul and its plans to bid for T-Mobile, declined to comment for this article.
Pulling off Son’s vision means Sprint has to persuade regulators in Washington to change their minds about mergers, meld with rival T-Mobile without damaging both companies, turn its also-ran network into the industry’s best and lure customers away from entrenched industry leaders.
Small fish, big pond
For Kansas City area residents, it takes some work to see Sprint as small.
We rock to concerts at the Sprint Center, track NASCAR teams’ race for the Sprint Cup and drive our own cars past Sprint’s looming Johnson County headquarters.
Sprint’s business profile dwarfs that of all other companies that call this area home.
It takes in almost $100 million a day in revenue from nearly 54.9 million customers. Then there’s the job count — 36,000 at the end of March, including roughly 7,000 in the Kansas City area.
Fast-growing Cerner Corp., for example, employs more people locally but less than half as many overall. And Cerner needs a year to collect as much revenue as Sprint does each month.
Change the yardstick, however, and Kansas City’s corporate giant shrinks.
Verizon and AT&T are true goliaths of the wireless industry and corporate America. Each ranks among the most valuable companies on Wall Street. Both trace their roots to the original AT&T — Ma Bell — that the federal government broke up in 1984.
Sprint’s roots are similarly old, but it sprouted from the much smaller United Telecommunications Inc., a regional phone company based in Westwood. United had far fewer customers to offer its newly branded US Sprint long distance service and never has caught up.
Strategy Analytics tallied 116 million wireless subscribers at AT&T at the end of March. Verizon has roughly 122 million, though it publicly reports only its 103 million retail wireless subscribers. Sprint weighed in with nearly 54.9 million and T-Mobile 49 million.
But size is only half the subscriber story. AT&T and Verizon customers also are more valuable.
There are basically two kinds of wireless customers. The most prized sign two-year contracts, typically so they can get a new phone at a subsidized price. They tend to have better credit, and the companies essentially allow them to use and then pay for service.
One of Sprint’s key problems has been the loss of 12.25 million — about a third — of these more valuable contract customers since the start of 2008.
Sprint and T-Mobile rely more on the other kind of customers. They buy service month to month, essentially paying in advance. They also tend to switch carriers or drop service far more often.
The key scale difference is revenue. This is where Verizon and AT&T — the duopoly — live and reign.
Contract customers generate more revenue. At Sprint, they produce roughly twice as much as a typical month-to-month customer.
Verizon’s advantage is that four out of five of its customers fit into the higher-revenue group. For AT&T, it’s roughly three out of four. Sprint’s mix has withered close to half and half.
BNP Paribas analyst Alen Lin found that AT&T and Verizon get four-fifths of all the wireless revenues the four national carriers collect. After he took out expenses for operating their businesses, the duopoly ended up with more than 90 percent of the cash left over for things such as paying off debt and investing in networks.
Amir Rozwadowski, an analyst at Barclays, noted that Sprint, Verizon and AT&T each spent $8 billion to $9 billion a year to operate their networks. That’s how he determined that Verizon and AT&T spent so much less per customer than Sprint.
All that’s a huge advantage when each company has to blanket the nation with network coverage and continually invest in technology just to keep pace.
Verizon and AT&T also run extensive businesses offering regular telephone, TV and Internet services over wires that reach customers’ homes or businesses. They even count Sprint and T-Mobile as customers, charging them to use their networks to fill in coverage gaps.
Here’s another way to weigh the differences. AT&T just agreed to pay $49 billion to get into the satellite TV business through DirecTV — more than twice what SoftBank paid to take over Sprint.
Although Sprint is No. 3 in the U.S. wireless world, it’s a really distant third.
Sprint’s scale problems are getting worse. It’s signing up fewer new customers and seeing more of the ones it has switch to the competition.
That is where the battleground lies. Nearly every American who wants a cellphone has one. One carrier’s customer gain generally means another’s loss.
It works pretty much like buckets of water. Every company’s bucket leaks. And every company works diligently to scoop up the customers that drip from rivals’ pails.
It means millions of high-value customers change hands every year. And during much of the last four years, Verizon and AT&T have been signing up most of those sloshing around for new phones.
Sprint was getting more than T-Mobile did. But that changed a year ago. Data show that Sprint’s share of sign-ups has slumped to its lowest in at least four years.
In that time, Sprint has been a subdued voice in the marketplace, and intentionally so. There was little point in trying to attract customers to a network known to have service problems during a major overhaul effort.
“It almost doesn’t matter what your offer or price is if your network is not considered to be strong,” Hesse said in late April. “We want to move that into a position of being an advantage.”
T-Mobile already has. Armed with an aggressive marketing push it calls Un-carrier and a newly built LTE network, it has shocked the industry by grabbing lots of high-value customers and outpacing Sprint.
“T-Mobile has the momentum right now,” said industry consultant Bill Ho of 556 Ventures LLC. “They’re winning the marketplace.”
All four carriers will report midyear subscriber totals by the end of July, and Sprint is expected have lost more ground.
Verizon already has said it grew by 1.4 million high-value customers in the second quarter and AT&T said it gained more than 800,000. T-Mobile is expected to report gains of perhaps 700,000. Estimates for Sprint show more losses of high-value customers.
Hesse said in March, however, that Sprint would report a net gain in high-value customers in the second half of this year.
For at least a year, Sprint’s network message has been a concise “Pardon our dust.”
That’s how Hesse explained the increase in dropped and blocked calls. Crews disrupted service as they ripped out and replaced Sprint’s old equipment at tens of thousands of towers.
At the same time, Sprint added LTE technology to make Web pages pop quicker, apps download faster and videos play smoothly on phones and tablets.
The equipment upgrade is about finished, although outsiders note that the project, called Network Vision, ran about six months longer than expected.
And while Sprint ads are touting “America’s Newest Network,” the new equipment and LTE still aren’t at full speed and capacity. Sprint’s ultimate goal, a worst-to-first turnaround, won’t be realized until the end of 2015.
That’s when Sprint promises it will fully tap its reservoirs of unused airwaves, called wireless spectrum, and pull off a technological leapfrog of Verizon and AT&T. It has dubbed the faster service Sprint Spark.
John Saw, who became Sprint’s chief network officer in January, told The Star in an interview, “You ain’t seen nothing yet in terms of how good this network can be, and we’re not even close to realizing its full potential.”
Until then, Sprint customers will continue to grapple with lagging LTE speeds, even in Kansas City, though it was among Sprint’s first LTE launches two years ago.
Mark Chandler noticed problems in February 2013. That’s when his iPhone 4S, which didn’t have LTE, started acting up.
At home, Chandler’s email, Twitter and Facebook accounts worked fine on his Wi-Fi connection. But around town on the Sprint network, service was patchy even after he upgraded to an LTE-enabled iPhone 5 last October.
Chandler said he often got no signal at Truman Medical Center in downtown Kansas City, where he worked. Ditto at Royals games, even though Sprint’s ads surrounded the field.
Complaints sparked assurances it would be cleared up in 30 days, then another month. A $25 monthly credit kept Chandler on board.
Until early this year. Chandler figured he’d given Sprint a year to fix it. Then, after about three years on Sprint, he switched back to AT&T.
“They’ve always been in some sort of turmoil,” he said. “What holds muster for me is results.”
To pick his new network, Chandler checked out RootMetrics, a Seattle area company that does network speed tests.
In early 2012, RootMetrics’ tests in Kansas City showed download speeds had leaped at AT&T and Verizon after they added LTE technology. T-Mobile joined them at the higher speeds last November after it had added LTE.
Sprint’s LTE speed surge paled in comparison and has continued to lag glaringly right through RootMetrics’ tests here in May.
“Sprint’s consistently behind the other players, and that’s across a large part of the nation,” said Bill Moore, president and chief executive of RootMetrics.
Tests for PCMag.com, also in May, found the same performance gap at Sprint here and across the 30 markets it visited.
“Sprint still has a way to go before it delivers a truly competitive experience,” its report said.
In the meantime, Verizon revved up its LTE network in several markets using added spectrum it bought three years ago. It began promoting its faster XLTE coverage in May.
T-Mobile jumped to the front of recent speed tests after adding spectrum in the last year.
AT&T has begun trials in Chicago and Minneapolis to use the spectrum it has more efficiently and boost its LTE service.
Will they come?
It is Jeff Hallock’s job to fill Sprint’s network with paying customers. And keep them.
“We’ve got a job to do … to change people’s perceptions about the Sprint brand and the network,” said Hallock, named Sprint’s chief marketing officer in January after rising through the ranks since 1999.
A better network should slow customer losses. But attracting other carriers’ customers poses a bigger problem.
One reason is that most wireless customers aren’t like Meyers or Chandler. They’re like Susan Davis in Jefferson, Ga.
In a word, they’re sticky.
Sprint has managed to hang on to Davis since 2003. But she hasn’t always been happy, such as when the company mistakenly dropped her husband’s military discount. She got that fixed, and a credit.
“They know not to make me angry,” said Davis, a former AT&T customer service representative.
Davis, who now runs a detective agency called Crafty Investigations, has stayed because she regularly checks the competition and has found the best deal at Sprint.
She signed up for a new discount plan and got a free Samsung mini-tablet to boot. Wireless service to the tablet, however, costs at least $15 a month.
“As many times as I’ve gone toe to toe with Sprint over something they’ve done wrong, I just can’t see myself leaving,” Davis said.
Although stickiness helps Sprint, it makes wresting customers away from other companies that much harder. Only about one in 100 Verizon or AT&T contract customers leave each month. About twice as many leave Sprint and T-Mobile.
To combat that, Sprint has been hammering consumers with the new discount plan called Framily, a wordplay on friends and family.
Customers with a Framily plan earn larger discounts by signing up more customers to their account, up to 10. Most families can’t justify that many lines and so have an incentive to reach outside the home for more customers.
Framily essentially turns Sprint customers into recruiters. Some enterprising Sprint customers are even offering their Framily account numbers on eBay. The idea works because Sprint bills customers separately, so Framily recruiters aren’t in the collections business too.
Hallock said the response to Framily has been strong, but he isn’t setting subscriber goals publicly.
“The same way it took time to get into this position we’re in, it’s going to take time to get out,” he said.
SoftBank, however, provides a yardstick for success.
It jumped into the cellphone business in 2006 when it bought Japan’s No. 3 carrier from the European giant Vodafone. Starting with about 16 percent of Japan’s wireless customers and a lagging network, SoftBank grew to 23 percent of the market and made money in the process.
Sprint’s ambitions are no less.
Outsiders, however, are waiting to see whether the company can deliver on the promises.
“I believe it. Now I want to see it,” said Stephanie Atkinson, chief executive of the research and consulting firm Compass Intelligence. “We’ll be watching their subscriber numbers closely.”
Doubts also hover over Sprint’s long-awaited attempt to merge with T-Mobile. Sprint executives and outsiders alike expect trouble persuading Washington to go along.
Winning the battle would bulk up the industry’s distant No. 3 carrier into something closer to the fighting weight of Verizon and AT&T.
“A merger would be quite transformative in the industry,” said Jan Dawson of Jackdaw Research.
Tomorrow in The Star: Selling a merger in Washington won’t be easy. But there may be a winning pitch — one that Kansas City won’t like.
By the numbers
How many millions of customers connect to Sprint
How many millions of high-revenue customers have left since 2007
How many millions of customers a T-Mobile merger would bring