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commentary The vice is just starting to clamp down on Sprint Nextel.
Marguerite Reardon/CNET
In a clear indication of increasing competitive pressure, the wireless carrier stepped up its spending on promotions in the second quarter, including an instant rebate and cash-back programs to lure in customers from rival carriers.
On a conference call today to discuss its quarterly results, executives attempted to reassure investors and analysts that those additional costs weren’t a lingering trend, and that the first full quarter of the Verizon Wireless iPhone and a heavily discounted iPhone 3GS from AT&T warranted the special action.
“We took additional measures to make sure we didn’t lose momentum in the marketplace,” Chief Financial Officer Joe Euteneuer said in an interview with CNET.
But if you look at the actions taken by the other carriers and the widely expected products coming out in the next few months (read: iPhone 5), you have to wonder if Sprint isn’t going to just face the same issues all over again. The second quarter may be less a unique situation and more the new status quo.
“It is nothing short of bizarre to suggest that expenditures to maintain competitiveness in the market would be considered an extraordinary item,” said Craig Moffett, an analyst at Sanford C. Bernstein. “That’s the very nature of an ongoing operating expense.”
Sprint said today it spent an additional $120 million on the promotions in the period, largely on instant rebates granted to customers. Euteneuer added the company has changed its instant rebate program so only certain customers are eligible.
“We really control the levers here,” he said.
Sprint took the additional step because it didn’t know how hard Verizon would push its version of the iPhone. In addition, the carrier was without a significant new smartphone to draw in customers, since the Evo 3D launched at the end of the quarter.
“It taught us a lesson of the importance of having great-quality products in the marketplace,” Euteneuer said.
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Now that Sprint has gone through a full quarter of Verizon selling the iPhone, the company feels it has its promotional game plan down.
“It’s like playing a team a second time,” he said.
But things won’t get easier once the next version of the iPhone rolls around. The speculation is for Apple to unveil the latest iteration in August and have it hit stores in September, which could have a significant impact on demand for Sprint products.
Verizon executives have already acknowledged that they expect a much larger pop in smartphone additions when the next iPhone arrives. Combine that with the usual mass of customers who sign up for the AT&T version, and you have precious few consumers left to go to Sprint.
Sprint is bound to feel pressure on the low end, too. Last week, T-Mobile dropped the price of its smartphone data plans, undercutting Sprint. T-Mobile had been the primary target of Sprint’s campaign to sign up its rivals’ customers, but T-Mobile responded with a promotion of its own.
The company is particularly sensitive about its customer growth. While as a whole, it added a strong 1.1 million net new customers in the period, it lost 101,000 net contract customers. That’s largely due to the continued losses from the Nextel side, but was still wider than what many analysts had expected.
Not everything is so dire. The company stands as the only carrier offering a truly unlimited data plan, an edge it is likely to market heavily. Euteneuer said the Evo franchise continues to do well, as the original Evo 4G and the Evo 3D continue to be top sellers. Euteneuer said he is confident given how well they did toward the end of the quarter.
Hesse, ever the pitchman, also remained upbeat.
“We felt confident in reaffirming our previous guidance with respect to postpaid net [customer additions] based upon the actions taken in the quarter,” Hesse said on the call.
Sprint may need to continue taking those actions if it wants to keep that confidence going.
