Sprint Nextel slows decline during Q2, but warns of rough waters ahead
August 6 2008 - 2:53 pm ET | Jeffrey Silva | RCR Wireless News
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Sprint Nextel Corp.’s comeback campaign showed limited progress but remains a work in progress, as the struggling No. 3 wireless provider slowed its hemorrhaging customer churn while recording a $344 million loss in the second quarter.
The Q2 results, which had Sprint Nextel losing 776,000 post-paid subscribers and realizing a 11% drop in sales, is apt to keep Wall Street wary about its ability to deal with the past — the ongoing fallout from it’s $35 billion purchase of push-to-talk king Nextel Communications Inc. in 2005 and a future that includes grand plans to deploy WiMAX service with partner Clearwire Corp. It is daunting task for Sprint Nextel CEO Dan Hesse, challenged with turning around a ship when No. 1 AT&T Mobility and No. 2 Verizon Wireless continue to make steady gains in terms of attracting new subscribers, offering new services and products and acquiring valuable spectrum.
During the carrier’s second quarter conference call, Hesse said the primary impact on the gross add side is due to Sprint Nextel increasing credit score requirements, reducing distribution and being more selective in customers brought in.
“We really are focusing on higher-value subscribers,” Hesse said.
Sprint Nextel’s John Garcia said the carrier is looking at the total value of a customer to drive higher ARPU and lower churn. However, this may not be the best idea. Technology Business Research Inc. took a closer look at Sprint Nextel’s results, anticipating that the company will continue to lose subscribers in upcoming quarters and pay for this in many areas.
“The loss of such high-value subscribers will continue to negatively influence the company’s revenue,” TBR said.
Others agree.
“Continued subscriber losses and investments in customer service improvements are taking a toll on both top-line and bottom-line growth,” said Kate Price, an analyst at NBQ Technology Business Research Inc.
The road ahead for Sprint Nextel likely will continue to be rocky, a mix of progress on some fronts and setbacks on others. Indeed, the company predicted churn will worsen in the third quarter.
“Sprint Nextel currently expects to report higher post-paid subscriber losses in the third quarter due to a seasonal uptick in churn when compared with second quarter 2008 results,” the company said. “We expect sequential declines in post-paid gross adds to moderate, and we expect modest pressure on post-paid [average revenue per user] for the balance of 2008. This combination of factors is expected to result in a sequential reduction in Adjusted [operating income before depreciation and amortization] for the third quarter. Capital spending for the wireless and wireline segments is expected to be comparable to first half levels of $1.3 billion and $261 million, respectively. Sprint Nextel also expects free cash flow to improve substantially in the second half of 2008. Furthermore, the company expects to remain in compliance with its debt covenants for the foreseeable future and expects to reduce gross debt by at least $1 billion by the end of the third quarter.”
Sprint Nextel’s $334 million loss reflected a 12 cent-per-share drop during Q2, which ended June 30, and contrasted with the carrier’s $19 million, or 1 cent per share, loss during the same period last year. Built into the Q2 sales decline were pre-taxes charges totaling $149 million for severance, exit costs and asset impairments and other minor merger-related costs. Without those special items, Sprint Nextel earned 6 cents per share. The company reported cash flow from operating activities of $1.1 billion and a cash position of approximately $3.5 billion in the quarter.
During the call, Hesse also spoke of improving customer service and remained upbeat about the carrier’s churn improvement.
“We are seeing signs of progress from our efforts to improve the customer experience, rebuild the Sprint brand and increase our profitability,” said Hesse. “Our company-wide retention efforts, which include Simply Everything plans, our Now Network campaign and the launch of the Instinct handset are proving to be effective retention tools, particularly for high-value customers, and this is beginning to have positive impacts on churn and ARPU. Our sequential improvement in post-paid churn is the best reported by any national wireless carrier since 2004, and it equals Sprint’s best-ever churn performance post-merger.
Hesse, hired last December to get Sprint Nextel back on track, appears to be under no illusions about the job ahead.
“To increase profitability, we are taking a more aggressive stance on reducing costs, including a more stringent spending review process, minimizing external labor costs, and we have streamlined our distribution channels by more than 25% since the beginning of 2008,” Hesse stated. “Further, our disciplined customer credit and collections efforts have reduced bad debt and strengthened the credit profile of our customer base.”
October 7, 2008 06:18 am
It's truly entertaining to read all the negative comments about Nextel. I was a Nextel employee for 6 years, survived 2 years of the mergerquisition, then left to go back to work for the Feds. Let's see...Nextel was valued at $32B at merger time, Sprint was valued at $34B. Not too much difference there, but Nextel was doing it with roughly 1/3 the staff. What does this tell me? Do you really, really think that the folks who audited both companies were that far off in valuation??? Not credible, that thought.BOTH companies came to the table with strengths and weaknesses. Nextel came to the table with a "get it done now" attitude that made some poor decisions but also made some very good ones. Sprint came to the table with some good processes and some bad ones (like the manager who, when asked why the same data had to be entered into 4 different databases, responded, "That's how we keep our staff count" (a quote from a fellow Sprint employee). The deal could have been an astonishing success if it had been better managed and if the employees had had expectations on behavior set properly.One fundamental to the demise of this was the fact that the Nextel employees were told by both Donahue and Forsee (and believed as a result) that it was really a merger--that the best from both companies would be pulled together into one entity. The Sprint employees were assured (confirmed by a legacy S HR employee) that it was really an acquisition--the Nextel employees would be told where to sit and stand and when to speak, and that there would be no changes to the culture, as had been the case with previous acquisitions. NEITHER set of employees was corrected in their misimpression of what was to take place; the senior management abandoned them to figure it out on their own. Results were inevitable: the Nextel employees resented being treated as second-class citizens, and the Sprint employees resented tremendously the Nextel folks coming in and offering suggestions right off the bat. Chalk this one up to an absolute failure to manage "our most important asset--our employees". With mismanagement like that, how could anyone anywhere expect that this was going to turn out well??Best thing now is for the company to be split up and sold off. The 1.9 GHz CDMA technology should be paired up with VZW 800 MHz CDMA, and dual-band handsets put in the market. Guaranteed winner for capacity expansion in the urbans, and the 800 MHz spectrum that VZW has now is better than 1.9 GHz for suburban / rural coverage. The 800 MHz Nextel spectrum should be sold to ATT; paired up with their existing 800 MHz holdings, and with GSM launched on it (to ensure that rebanding continues to work), it would be dynamite for ATT. Sell the 2.5 GHz spectrum to Clearwire, and see if they can make a go of WiMAX. Sell off the iDEN equipment by the pound to either NII or the scrap dealer (no way this is going to public safety...technology from DARPA is going to turn that market on its head in 2-3 years). Sell off the long-lines businesses to someone who wants them (perhaps Comcast). Close the rental facilities everywhere, and finally figure out something to do with the palatial campus at OP, KS. That last may be the hardest nut to crack.
August 11, 2008 04:09 pm
Maybe we should stop beating up Sprint. Everyone I think agrees buying Nextel was a colossal mistake. Hopefully there is a solution. As a contractor on the WiMax project I have some doubts how that will go after the hand over to Clearwire.Seems complicated but it might work. It would be a shame to see Sprint fail as they do have good coverage in most of the states. The question is how can they compete globally against the other carriers with no international footprint or partner ? If T-mobile had the money to buy Sprint and could gain FCC approval to absorb Sprint that could be a powerful combination. But would that just be two more muts breeding ?
August 11, 2008 06:17 am
The problem is not Nextel....the problem is no effective marketing to move the unhappy Nextel customers into CDMA service. The majority of the subscriber losses are coming from the Nextel base, and they're moving somewhere else (giving up PTT, in almost all cases), when Sprint could be making it easy for them to move to CDMA and get improved service, better devices, etc.
August 11, 2008 06:03 am
Everything Sprint touches turns to crap..
August 9, 2008 05:02 pm
I was a Sprint customer for nearly 12 years - a long time right? I loved the PCS voice service and later really liked the Air Card for my laptop internet. I was two months away from contract renewal when my air card quit working. I did not have insurance on it but I figured since as I had been paying $150/month and never late they would cut me a break and maybe even upgrade me to the newer faster USB antenna.But no, sure I could get a discount but I was hoping to get a new phone too. Apparently I was not a valuable enough customer and I got mad & canceled my contract walked across the street to Verizon store where I got both an internet card and new phone and for a lower monthly fee as well, and I have even a stronger signal in my Oakland home and much better at the San Francisco office. The voice may be a shade less clear than Sprint but that may be my imagination but the internet card is every bit as fast and the dropped calls are rare compared to several times during the day with Sprint.Thanks to Sprint for being so inflexible and forcing me to Verizon. I might consider going back someday if Sprint ever learns how to treat customers. Oh and I had to pay Sprint to cancel the contract ! !
August 9, 2008 06:02 am
I too am a Sprint employee and have been for 11 years. We are all worried how this company is going to survive. I work in logistics and now everything has been warehoused in several locations around the country. Many millions of dollars sitting collecting dust which may never reach its ultimate location.Many of my fellow employees show up for work (usually late)and then vanish for the day. We have one manager who misses every Friday and Monday, and plays golf every Thursday during good weather, yet nothing is said or done.I need my job, as I have a wive and 2 children and I although I pray it is not so, I do fear the company is doomed.I hope there will be a buyer who can rescue the company before it is too late to reverse this collapse
August 8, 2008 06:03 am
As a former Nextel customer now VZW employee I can tell you that Sprint's customer service was enough to make me pay that ETF. Just cause the dude shows up on tv commercials acting all humble and sincere does not mean he is going to give his front line employees better people skills. After the 2nd time I was on hold for over 45 min and then hung up on, I was ready to go. Nextel reps were not as bad as the sprint ones are, at least the nextel people knew what they were doing in terms of troubleshooting. Sprint just continuously transfers you to useless after useless rep. If your lucky, the 8th or 9th call might get you someone who actually speaks English and understands what you are saying.
August 8, 2008 06:13 am
I am a Sprint employee but will soon tender my resignation in the coming months. The company is so far off track it ca not now survive. It may not even find a buyer interested in taking on this bureaucratic behemoth that has been created. To accomplish even the simplest of tasks in Sprint requires so much paperwork, process and approvals that the 75% of the workforce has given up doing anything but collecting a check. Money has been wasted by managers with no idea what made Sprint's money. CDMA made the money but expansion on new cell sites has stopped, Nextel is a looser and WiMax was just a pipe dream with the management team Sprint had in place like Barry West, and it will be surpassed by LTE. Now giving WiMax to Clearwire /Intel /Comcast means it will flounder further as the infighting will implode it and it will become the next write off a la Nextel.The best Sprint employees are leaving and the deadwood will cling to the mother ship and create more PowerPoint presentations and processes as they grow fat and cash checks for just sitting.The solution for success Sprint - Dump Nextel, Go back to building CDMA sites and see if WiMax works in the soon to be launched markets before expanding it. Find the real workers in your company and promote them, hire good Contractors then do not undercut them and pay them on time. A most important issue an 'adios amigos' to most of the mid level managers.
August 7, 2008 06:16 am
What did you expect when you bred two muts of different spiecies? Nextel was never a company based on quality and when your whole company is biult on the minimums top to bottom it cannot succeed. Sprint has to shed the nextel brand and act like it never happened. You're falling behind fast so good luck
August 6, 2008 02:57 pm
Saving sprintI’m wasting time posting this even if the Hesse led board are reading they are too out of touch to act, react to the world they are marketing. Loosing towers good move. Instinct too late for even a good copycat!! Sprint will only!!! Recover by introducing a great new concept. They tried with the boost unit and unlimited @ $45 right concept right time wrong pricing!! Bring it back at a higher price nationwide roll out a must!!! Screw the Internet and messaging let the consumer bolt on what they want. Don’t tell them what they want you morons!!!$89-$99 is still to high to start a revolution! And please learn something from a successful new company drop contracts! Drop handset subs and cut that huge ad budget that doesn’t work. If you have the best offer they will come in droves they will pay whatever for the phone and they wont leave. Your core business objective is all wrong!!! Sprint is at heart sub prime embrace your roots capitalize on it and reign supreme. I have 12 years dealing with the customer directly not any board member has or does have experience dealing directly with the customer!! Ask! I’ll show you the way thru the fog and try to remember above all your a sub prime telephone service provider. Aspire for more but remember your core!!!!!