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Sprint reverses subscriber loss, but picture still cloudy on mobile data performance


09/02/2011

Sprint (NYSE:S) was bound to have a good quarter at some point, and the fourth quarter of 2010 proved to be that moment. Sprint still reported a nearly $1 billion loss, but it also posted its first quarter of net postpaid subscriber gains in more than three years. Sprint credited consumer satisfaction and execution for its new success, but interestingly it didnít cite mobile data services. While other operators are attributing their Q4 growth to an explosion in mobile data services, Sprint didnít have anything to say about its mobile data performance at all.

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With 58,000 net contract adds, Sprintís gains were tiny compared to its larger competitors AT&T (NYSE:T) and Verizon Wireless (NYSE:VZ, NYSE:VOD). But Sprint projected 2011 would be its first full year of subscriber growth since 2007. While itís probably too early to say, Sprintís long decline may have just been reversed.

As it has in previous quarters, prepaid drove Sprintís 1.1 million total net adds, but Sprint did manage to stem the loss of its most valuable customers. It added 519,000 postpaid customers under the Sprint brand, and picked up an additional 646,000 prepaid subscribers under its various Boost Mobile, Virgin Mobile and Assurance brands. The Nextel iDEN network still continues to be a thorn in its side, though, dragging down Sprintís net adds by 395,000.
Sprint touted its WiMax mobile broadband service as huge advantage in the market, though it did not directly credit WiMax smartphones like the HTC EVO 4G or the Samsung Epic 4G with its change of fortunes. Rather it focused on the number of Ď4Gí devices in its portfolio compared to its competitors.

CEO Dan Hesse said Sprint now has 18 4G devices in its portfolio, more than any other operator, though each defines 4G in a different way. Most of those devices, however, are WiMax-embedded laptops and notebooks, USB modems and WiFi broadband routers like Novatelís (NASDAQ:NVTL) MiFi. While those devices definitely drive growth, the true stars in mobile broadband have proven to be smartphones and more recently tablets of which Sprint only has three devices. In addition to the EVO and Epic, Sprint launched a scaled-down version of the EVO called the EVO Shift last month. Sprint does have one pretty compelling device in the wings though. It landed Research in Motionís (NASDAQ:RIMM) first BlackBerry PlayBook in a WiMax configuration, which could help it revive its enterprise data subscriber base.

But at the rate other operators are unveiling smartphones and tablets this year, Sprint could find itself out Ď4Gedí by T-Mobile (NYSE:DT), AT&T and Verizon Wireless. AT&T has promised 25 high-speed packet access plus (HSPA+) and long-term evolution (LTE) devices by the end of the year, though only a portion of them will be phones and tablets. AT CES, Verizon unveiled 11 devices that run on its new LTE network, including four smartphones, Motorolaís (NYSE:MMI) highly anticipated Xoom running Googleís (NASDAQ:GOOG) new Android tablet OS, and Ciscoís new enterprise tablet. T-Mobile is quickly adding new HSPA+ handsets and tablets, including the Dell (NASDAQ:DELL) Streak and the LG Electronics G-Slate tablets, the Samsung Galaxy S 4G and a new Android version of the T-Mobile Sidekick.

Many of those devices will be released in the next month, and by the end of the second quarter the market will be virtually flooded with 4G-branded tablets and smartphones, giving Sprint a marketing headache. Though the WiMax network is wide open and arguably faster than all of the other operatorsí networks save Verizonís, Sprint will have a hard time making itself heard amongst all of that 4G noise. And though Sprint has an early lead in getting its WiMax devices to market itís been stymied by the much smaller ecosystem for WiMax. A case in point is the new dual-screen Kyocera Echo Sprint announced earlier this week. Itís a data intensive smartphone, but Sprint couldnít convince Kyocera to embed it with WiMax. Other new smartphones in the Sprint line-up like the LG Optimus and the Samsung Transform lack WiMax connectivity.

How well Sprint has taken advantage of its early launch of mobile broadband is still an open question, as Sprint has become extremely stingy with its mobile data and smartphone numbers. While AT&T and Verizon track smartphone and data usage using various metrics (though AT&T uses the far more ambiguous ďintegrated devicesĒ definition), Sprint has stopped releasing any mobile data numbers whatsoever. It doesnít even report what portion of its $55-a-month postpaid average revenue per subscriber (ARPU) is attributable to data. Nor does it report overall data revenues. In Q4 of 2009, Sprintís monthly postpaid data APRU was $16.75 overall and $19.50 for its CDMA customer base. WiMax services launched last year should have driven those numbers upwards, but given that AT&T and Verizonsí postpaid data APRUs are now at $20 or higher, Sprint may be experiencing a data ARPU decline that it doesnít want to brag about on its earnings call.

As for devices, Verizon is now at 26% smartphone penetration and 60% of AT&Tís subscriber base has a 3G or integrated device. The only indication of how Sprint has been doing in smartphone sales comes from its WiMax network provider Clearwire (NASDAQ:CLWR), which breaks out wholesale and retail subscribers. Clearwire doesnít report Q4 earnings until next week, but in Q3 of 2010 it reported 1.83 million wholesale customers, a majority of which are probably Sprint customers. Most interestingly though, Clearwire reported 832,000 wholesale 4G connections for customers that reside outside of its WiMax footprint, almost all of which are likely Sprint WiMax smartphone customers. Itís tough to read too much into those numbers except that Sprintís total WiMax subscriber base couldnít have exceeded 1.8 million at the end of September.

Sprint also may find its mobile broadband prospects further hindered if Clearwire doesnít overcome its financial issues. The operator has completed its first major rollout covering 120 million pops, but it needs more to get more cash before it can start phase II. Clearwire is reportedly auctioning off some of its sizable spectrum hoard, with T-Mobile as the principle bidder, but it may be having trouble meeting day-to-day operational expenses. Bloomberg, citing unnamed sources, reported this week that Clearwire is planning to shut down its retail operations to conserve cash. Clearwireís wholesale business is growing much faster than its retail business, and shedding its stores and customer service would save the operator enormous sums. But Clearwire also makes a lot less money from a wholesale connection than it does a retail connection. It would have to scale its wholesale operations enormously. The biggest obstacle to such scale is its lack of nationwide coverage. The biggest obstacle to nationwide coverage is lack of funds. And so on.



 

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