Sprint struggles to define strategies for profitability

American wireless carrier Sprint returned to postpaid subscriber growth in Q1 2015 but it came at the expense of sharp ARPU and service revenue declines.

Sprint, a part of SoftBank of Japan, will be unable to return to revenue growth in 2015 and will continue to trail its competitors in postpaid net additions. Subscriber growth will continue to improve as the year progresses but that will not offset the impact of Sprint’s lower ARPU which will cause service revenue declines to persist. Additionally, Sprint’s IoT portfolio is limited compared to

AT&T’s and Verizon’s offerings, providing the carrier fewer revenue streams to compensate for its phone subscriber losses.
Sprint was able to report postpaid net additions for the first quarter in over three years in Q1 2015 as the carrier’s aggressive pricing strategies are attracting cost-conscious consumers and attributed to the carrier reporting improved phone subscriber retention in the quarter. However, Sprint’s postpaid subscriber growth continues to stem primarily from tablets which generate lower ARPU than phone additions.

Sprint’s pricing tactics such as the Cut Your Bill in Half promotion, coupled with the carrier’s higher tablet subscriber mix, resulted in postpaid ARPU declining 10.4 percent year-to-year in the quarter, the company’s highest drop to date. Sprint was also unable to improve OIBDA margin in 1Q15 despite cost-cutting initiatives and more customers purchasing unsubsidized devices.

Sprint’s performance was stronger in the prepaid segment, however, as the carrier reported its highest net additions since 2011 and the company was able to generate year-to-year revenue growth despite recently launching lower-priced service plans.

Sprint latest plans

Although the carrier is facing heighted completion from MetroPCS and Cricket Wireless, Sprint led the U.S. market in prepaid subscriber growth for the second consecutive quarter due to the success the Boost Mobile brand is having amongst cost-conscious consumers.

Sprint’s latest initiatives to gain subscribers will further diminish profitability

Sprint is embarking on initiatives that will improve subscriber growth but come with high expenses. In April, Sprint more than doubled its retail footprint by opening 1,435 stores that are co-occupied with RadioShack. The move helps Sprint catch up to its competitors in distribution but accompanying overhead expenses will further strain the carrier’s profitability.

In March Sprint began offering to pay off all of the required costs for new customers to switch to the carrier, including Early Termination Fees and outstanding payments on device financing plans. Unlike similar T-Mobile offers, Sprint hasn’t set a limit to which it will spend on these expenses which may result in massive costs for the operator.

In April Direct 2 You, a service in which Sprint specialists offer to bring new smartphones or tablets to customers’ homes and provide assistance in setting up the devices, launched in several markets. Sprint intends to eventually offer the service nationwide through 5,000 Direct 2 You vehicles. The service will help attract a niche market of consumers but will not compensate for the costs and potential liabilities associated with offering the service.

Eric Costa, telecom analyst and Steve Vachon, research analyst at Technology Business Research