As far as Sprint Nextel Corp. officials are concerned, the future is mobility, new models and new math.
Sprint Nextel Chief Executive Officer Gary Forsee argued at the company’s annual analyst conference that his company’s partnership with cable companies and its relationships with multiple mobile virtual network operators put it at a competitive advantage as the telecom industry faces a saturating wireless market and competition from new technologies and new players. Forsee went on to say that rather than thinking about the number of wireless users the carrier supports, the focus should be on the number of wireless uses.
“I don’t think the historic ways that we’ve looked at penetration, the historic way that we’ve looked at uses of services, kind of fit this new model, where … the device and the capability of the network are now matched up,” Forsee said.
Sprint Nextel has a big year ahead. Its recently spun-off local wireline operation, Embarq, is scheduled to begin operations as a new company in May. The carrier has to absorb the wireless affiliates that it already purchased or is in the process of acquiring, such as Nextel Partners Inc.-which is expected to close late in the second quarter. Analysts also expect the handful of remaining affiliates to be snapped up within the next few months. The carrier expects a dual-mode CDMA/iDEN handset to launch in the fourth quarter, and the first fruits of its cable company joint venture are slated to go to market in the third quarter. Sprint Nextel also recently announced that it would trim its workforce of roughly 60,000 employees by about 2,500 jobs by the end of this year.
Company officials repeated some of the themes from their year-end financial reporting session, including the argument that their prepaid and reseller additions-which made up the majority of Sprint Nextel’s 2 million net customer additions during the fourth quarter of 2005-deserve more respect.
“We really think there’s a new way to look at the marketplace. The old math focused very much on postpaid subscribers. The old math treated all postpaid the same,” said Chief Operating Officer Len Lauer, who went on to suggest that customer additions should be more closely scrutinized for the value they bring, particularly when it comes to postpaid add-a-phone subs.
“Old math says prepaid has very low value. Boost [Mobile L.L.C.] is not your typical prepaid,” Lauer said, referring to the company’s youth-oriented prepaid service that uses its iDEN network. “It’s time for new math. It’s time to see the value of what we have in our Boost Mobile franchise.”
Boost Mobile’s average revenue per user closed out 2005 at $37-far less than Sprint’s industry-leading overall ARPU of $63, but much better than other prepaid services such as Tracfone Wireless Inc., which generated about $14 in ARPU last year. Whether Sprint Nextel managed to convince Wall Street of Boost’s value remains to be seen.
“The prepaid market is really changing, and we’re kind of at a crossroads,” said Weston Henderek, senior wireless services analyst at Current Analysis Inc. He noted that all of the nationwide carriers are getting more aggressive in pursuing prepaid customers, with plans that are starting to offer many features of postpaid plans: monthly buckets of minutes, off-peak or mobile-to-mobile calling and with some, such as Alltel Corp., even beginning to subsidize handsets for prepaid customers. “It really makes the case that prepaid and postpaid are starting to blend together to a certain degree, in a way that does make prepaid more valuable for the carriers,” he added.
Sprint Nextel reiterated its financial guidance of at least $41 billion in consolidated revenues for 2006, which assumes high single-digit to low double-digit growth in wireless. Sprint Nextel expects to spend about $6.3 billion in capital expenditures, including $600 million for rebanding 800 MHz spectrum this year. In total, the operator expects to spend $1.4 billion on rebanding. The other $800 million “primarily will be recorded as spectrum assets,” the company reported. Sprint Nextel’s guidance did not include results for Nextel Partners, which will bring the company an additional 2 million direct customers and put them at about 49.6 million customers on its network.
Although Sprint Nextel doesn’t expect products from the cable company joint venture until later this year, the company made several announcements last week that link wireline and wireless services. The carrier said that it would begin offering unlimited wireless calls to and from a landline number; consumers can get the service for $5 a month, and business customers with wireless plans of at least $50 per month will pay $8 monthly for it. For enterprise customers, Sprint Nextel also announced a Voice over Internet Protocol telephony offering. Sprint Nextel said it would expand on those services later this year, including allowing business customers to have all the features of their office private branch exchange on their cellular phones.
“We have everything we need to do battle and to be the best in the industry,” said Chairman Tim Donahue.
