Sprint Prepaid Wireless Strategy

by Alex
(Boston)

Some pretty interesting stuff going on with Sprint over the past couple of years related to prepaid wireless! When they first launched Boost Mobile, the prepaid numbers weren't even available to the market as a separate business/division. Then as prepaid started to grow they started to break it out separately. When they did that, analyst gave them a lot of slack for having so much growth from what they considered to be a less profitable business.



Fast forward a few years and their prepaid division has saved them as Sprint Nextel continued to lose subscribers after the merger. Yet still they continued to get negative feedback from the market, and they really needed to get their postpaid business back on track. Well, although it seems to be getting somewhat better, their results are still poor. The HTC 4G Evo seems to be doing quite well in its first few days, but I don't think we know whether these are new customers, or existing customers upgrading. If they're new customers, that's great. If not, while the phone may be great, and very popular, if people don't believe enough in Sprint's network and customer service, they won't be able to grow. In fact, they may actually lose money on people buying what is likely a very highly subsidized device.


Anyway, back to prepaid. Now, as you discuss, they have four prepaid brands. I think the big question is whether this is going to set the stage for tremendous success in the years to come as prepaid wireless becomes more and more popular, or are they going to continue to bleed postpaid customers as people see Sprint more and more as taking focus off of postpaid?


I think it's a bold move to invest so highly in prepaid, and as a believer in no contract wireless, I think they're in for a good run. But I do believe that if it doesn't pan out for them, they're in for some seriously tough times, even worse than they experienced so far.

In theory, I suppose they can work on both postpaid and prepaid at the same time, however, with such a massive bureaucracy I can't imagine they'll have the proper focus to succeed in both businesses. And let's not forget their work on 4G. So many things going on over there. Hmm.... I'm curious to see how things look for Sprint-land five years from now!

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Jun 07, 2010
Sprint Prepaid Wireless Strategic Risks
by: PrepaidWirelessGuy

Thank you for your thoughts. Sprint is definitely making some bold moves in the no contract wireless space! It's interesting that the market continually expresses that prepaid customers aren't as profitable. Yes, their lifetime value is much more unpredictable due to the fact that customers don't have to sign contracts, however, there's also a much lower CPGA (Cost Per Gross Add). Dealer compensation is lower, and even more importantly, handset subsidy is much lower as well. In fact, I've seen prepaid wireless financial models that show that a prepaid customer can actually be more profitable.


Consider that with prorated ETF (Early Termination Fees) on postpaid that were introduced not too long ago, customers are finding that it's not as brutal (i.e. expensive) to break their contract. Particularly when they start calculating the total cost of ownership (i.e. phone and monthly plan) in their calculation.


Also consider that as no contract wireless continues to move upstream with higher end smartphones (ex. BlackBerries and Android phones), people are spending more on their handsets. After spending a good chunk of change on a nice phone and accessories, customers becomes more sticky and less likely to leave. So perhaps prepaid wireless historically had a lower lifetime value when phones were mostly disposable at $20 to $50, with only pay per minute plans available. However, now with more expensive phones and monthly plans that have features that rival postpaid plans becoming widespread, in my opinion, financial analysts who state that prepaid is not as profitable simply don't know what they're talking about. Sorry, but it's true. It's a very complex industry, and these analysts simply don't have the appropriate knowledge to make a lot of the conclusions that they tend to make.


Anyway, I definitely agree that only time will tell, and it will be interesting to see the state (and structure!) of the Sprint business is five years from now!

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