Editor’s note: Sprint has resurfaced as a stronger competitor within the postpaid phone market, exemplified by the carrier outperforming Verizon and AT&T in postpaid phone net additions for the fourth consecutive quarter in 4Q16. But what’s ahead in 2017?
HAMPTON, N.H. – Sprint’s ends calendar year 2016 on a high note, but obstacles will remain over the next year
Sprint has resurfaced as a stronger competitor within the postpaid phone market, exemplified by the carrier outperforming Verizon and AT&T in postpaid phone net additions for the fourth consecutive quarter in 4Q16. Sprint’s success is being buoyed by its renewed focus on unlimited data plans as consumers gravitate to the programs because they are more cost-effective in supporting prolonged video and music streaming compared to tiered data plans. Unlimited data will be the centerpiece of Sprint’s postpaid strategy in 2017, and the company will continue to offer aggressive pricing promotions and may also begin to tuck taxes and fees into its rate plans to widen its pricing advantage over T-Mobile One programs.
Despite postpaid ARPU [average revenue per customer] declining 5.3% year-to-year in 4Q16, which was impacted by aggressive pricing promotions such as offering half-off competitors’ service rates, Sprint reported both consolidated and wireless year-to-year revenue growth due to higher equipment revenue stemming from the adoption of device financing plans. Sprint’s emphasis on nonsubsidy pricing plans also contributed to wireless EBITDA margins improving 450 basis points in 4Q16 to 30.7%.
Sprint is not without obstacles heading into 2017, however. Though margins are improving, Sprint continues to report high net income losses, stressing that further restructuring will need to be implemented for the company to be profitable. Sprint lacks an effective connected device strategy, which resulted in a net loss of 30,000 postpaid tablet customers in 4Q16, while postpaid phone churn elevated in the quarter, highlighting heightened competitive pressures from the recent launch of T-Mobile One. Sprint also continues to experience double-digit year-to-year wireline revenue declines, which the company seeks to remedy by focusing on strategic data services such as Ethernet and SD-WAN. However, the company lacks the scale to contend with larger competitors such as AT&T and Verizon within these markets.
To curb continuing prepaid subscriber losses, Sprint will relaunch Virgin Mobile in 2017, which TBR believes will become the company’s central prepaid brand and will focus on providing a pricing strategy differentiated from its postpaid offerings to maximize subscriber additions. TBR also expects Sprint to consolidate or eliminate some of its other prepaid brands to streamline operations and minimize cannibalization.
Sustaining long-term revenue growth while improving profitability will be a difficult balancing act for Sprint
Encouraged by its improved financial performance in 2016, Sprint recently announced several new investments that will sustain revenue growth but may conflict with restructuring initiatives that have been a key initiative at Sprint since Marcelo Claure became CEO in 2014.
Sprint’s 33% stake in the music streaming service Tidal, which was announced in January reportedly for $200 million, allows Sprint to offer exclusive Tidal content and other potential incentives such as discounted subscriptions and zero-rated access. However, TBR believes these benefits will have minimal impact in improving subscriber growth while the deal will add to Sprint’s already heavy debt load.
Acquiring a 70% stake in i-wireless, a mobile virtual network operator owned by Kroger that serves low-income customers under the federal Lifeline program, will complement Sprint’s existing Assurance Wireless brand and will help to recover the carrier’s prepaid subscriber base. However, Lifeline customers are low-ARPU subscribers and government support of Lifeline programs may be reduced under the Trump administration.
Sprint’s commitment to bring 5,000 jobs back to the U.S. by the end of FY17 will improve customer experience and build emerging segments such as Direct 2 You. The announcement comes in the wake of several rounds of layoffs over the past several years, however, indicating the new employees may be unnecessary hires that will weigh on Sprint’s margins. Sprint is also expected to increase capex in FY17 to support its Next-Generation Network densification deployments, which may interfere in the carrier addressing its debt obligations and meeting its goal to improve free cash flow.
To help Sprint manage the balancing act of improving profitability while expanding operations the company appointed its first-ever Chief Operating Officer in January, Nestor Cano. The carrier also announced in December Rob Roy will serve in the newly created position of chief digital officer, a role focused on helping to reduce employee costs by automating sales and customer service functions via digital portals.