Sprint Nextel Corp., the third-largest U.S. wireless carrier, has managed to convert hundreds of thousands of iDEN Nextel customers to its Sprint-branded platform.
But will Sprint find itself able to woo contract subscribers after it shuts down its iDEN network?
In the second quarter alone, Sprint gained on its own branded platform 431,000 of the 688,000 customers it lost on the Nextel platform. Here’s another way of looking at it: Sprint reported that 60 percent of total subscribers who left the Nextel platform were recaptured on its own platform. That compares to 27 percent conversion in the second quarter of 2011 and 46 percent in the first quarter of 2012.
But excluding these additions, Sprint only added a total of 46,000 branded postpaid subscribers in the first half of the year, according to Canaccord Genuity. Sprint anticipates shutting down its iDEN network as early as June 30, 2013.
“Once this source of sub growth is eliminated with the shut down of iDEN sites slated for mid-2013, we note that the primary source of postpaid subscriber growth would be the iPhone, which requires much higher subsidy,” Canaccord Genuity analysts wrote Thursday.
Sprint ended the month of June with a total of 56.39 million customers, including 29.43 million postpaid customers on its own platform. That’s up from 56.1 million customers at the end of March, including 28.99 million postpaid customers on the Sprint platform.
The future subscriber growth at money-losing Sprint may be somewhat immaterial to the strength of the company and how it is perceived by Wall Street.
The focus of the big wireless carriers “is going to be moving towards profitability anyway,” said Rich Karpinski, senior analyst at Yankee Group. “It’s going to be hard to grow smartphone users because the penetration is so high.”
The wireless penetration rate in the U.S. and territorial population already was 104.6 percent at the end of last year, according to CTIA-The Wireless Association.
Still, smartphone devices namely the iPhone are helping Sprint add to its customer base. The company sold nearly 1.5 million iPhones in the second quarter, with 40 percent purchased by new postpaid customers.
Eventually, though, the smartphone market will be saturated. Already, 72 percent of Sprint’s postpaid platform base owns a smartphone.
Scott Sloat, a Sprint spokesman, said the company didn’t give any guidance for subscriber growth in the second half of the year.
Richard Greenfield, an analyst with BTIG Research, wrote in May that “most investors and certainly the management teams of the largest operators realize that ARPU growth and margin expansion are of greater importance than subscriber growth in this mature industry.”
That may help explain why Sprint enjoyed a surge in its stock price following its second-quarter results.
The Overland Park, Kan.-based carrier reported retail postpaid ARPU (average revenue per user) growth of 7.4 percent year over year, Goldman Sachs analyst Jason Armstrong wrote, significantly beating its peers. Sprint also largely improved its margins through cost benefits from its “Network Vision” initiative, analysts said. As part of that network transformation, the company has shut down 9,600 Nextel sites.
Sprint also raised its yearly EBITDA guidance, another key metric of financial performance that Wall Street analysts watch closely. Guidance was raised to $4.5-$4.6 billion, up from $3.7-$3.9 billion, according to Armstrong of Goldman Sachs.
But Armstrong said a new iPhone that Apple is expected to release later this year will contribute to lower EBITDA in the second half of the year. Sprint heavily subsidizes Apple’s smartphone.
Still, Sprint’s network cost-cutting measures likely make those iPhone subsidies less painful.
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January 17 2019 @ 18:50:04 UTC