Home - , , , , - Sprint Drops T-Mobile Bid, Replaces CEO, What's Next?

Sprint Drops T-Mobile Bid, Replaces CEO, What's Next?

Sprint has abandoned its ill conceived attempt to buy rival T-Mobile and fired CEO Dan Hesse. Hopefully these changes mark a turning point for the nation's third largest (by a hair) mobile operator.

Acquiring T-Mobile would have bought Sprint a lot more customers and eliminated a pesky competitor. But it would have done almost nothing to improve Sprint's biggest competitive disadvantage compared to AT&T and Verizon, the lack of rural coverage.

Hesse was an affable frontman for Sprint but the company declined under his watch. His replacement, Bolivia born Marcelo Claure, is a relative unknown who founded global mobile phone distributor, Brightstar Corp. in 1997 when he was just 27 years old. He built Brightstar from a small phone retailer into the largest Hispanic owned business in the US, a multinational distributor operating in 50 countries with over $10 billion in annual revenues. Sprint's parent company Softbank acquired a 57% interest in Brightstar in October, 2013 and Claure has been a member of Sprint's board since January

Claure has a tough job ahead of him as Sprint has serious problems. It's been losing customers and money for years. The "Network Vision" and "Sprint Spark" network upgrades have been moving at a glacial pace compared with similar work at other operators. Sprint has been doing "rip and replace" upgrades where they shut down cell sites for days or even weeks while they upgrade. Customers served by the sites being upgraded experience degraded service or none at all. The other carriers seem to be able to make network upgrades much faster than Sprint and without degrading service for customers.

Sprint's once disruptive pricing, especially in prepaid, isn't even competitive anymore. In spite of having a fourth-rate network, Sprint service carries premium pricing. I believe that the first thing Claure needs to do is to cut plan pricing across the board. When you have the worst network you have no choice but to compete on price while you fix the network.

Lower pricing will likely lead to greater financial losses in the sort term.  But if Sprint/Softbank can afford to buy T-Mobile, it can afford short term losses to buy some market share.

Claure also needs to promptly fix whatever it is that makes Sprint's network upgrade process so slow and disruptive to customers. And if Sprint wants to acquire something, how about buying up regional CDMA carriers like U.S. Cellular, C-Spire, Cellcom, nTelos, Shentel, Appalachian Wireless and Bluegrass Cellular to expand its coverage into new markets.

Finally Sprint needs to start making headlines and earning goodwill with new customer friendly initiatives like T-Mobile has been doing with it's "un-carrier" strategy. A good place to start is by removing the arbitrary restrictions on which phone can be used on which Sprint brand or service. Sprint, Boost Mobile, Virgin Mobile (including payLo) and Assurance Wireless all use the same network, there's no fundamental technical reason why a customer shouldn't be able to use a Virgin Mobile or Sprint phone on a Boost plan or vice-versa.

I'm really hoping new leadership and the end of the distraction of the T-Mobile deal can turn Sprint back into the scrappy competitor that shook up the mobile industry in 2006 with Unlimited by Boost Mobile, a $50/month unlimited talk, text and data plan. At that time time unlimited everything was only available to postpaid customers for $120/month or more. The $50 unlimited plan gained Sprint a lot of favorable press and customers and forever changed the way mobile service is sold and priced in the US. However, to make the sort of sweeping changes that are needed, Claure needs the full support of his boss, Softbank CEO Masayoshi Son and the Sprint board. Lets hope he has it.

Image: "Marcelo-claure" by Mattkholland - Licensed under CC BY-SA 4.0 via Wikimedia Commons.


28 comments:

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  1. Slight correction. Boost unlimited at 50.00 started in January of 2009. I remember this distinctly because it was enough for me to leave Sprint and move to Boost.

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    1. That's a different service. The original 2006 Unlimited by Boost Mobile was CDMA based and only available in certain states, including California. Boost Unlimited, which launched in 2009 was nationwide and ran on the iDEN network only initially.

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  2. Boost IDEN was the big nationwide deal at $50, how far we've come in 5 years.

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  3. T mo's APRU is actually in decline, not a good long term strategy, I guess their parent company will keep looking for somebody to take TmoUSA of its hands.

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    1. Correction: Marcelo Claure is from Bolivia not Brazil.

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    2. You're right. I corrected the post, thanks for letting me know.

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    3. I don't think the ARPU is as much of a big deal as the acquisition cost of customers. As rates get more competitive ARPU has to suffer

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  4. Sprint never really recovered from the Nextel mess, I don't think God himself, and Jesus as his COO, will be able to save the them, what will happen, they will be butchered in BK court and all parts of the carcass will be split between VZ/ATT/T-Mobile, not necessarily on the cheap, and will end up with 3 wireless providers after all.....unless the same thing happens to T-Mo and than there were only 2 left.

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    1. T-Mobile isn't exactly healthy either, their average customer isn't paying much , their churn rate is low though.

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    2. T-Mobile is only trying to impress a suitable buyer with its uncarrier moves. Deutsche Telekom wants to sell T-Mobile ASAP. With this strategy they can get top dollars for
      T-Mobile but in the long run T-Mobile is not making a lot of money with its prices. It just looks good on paper. You think Deutsche Telekom would get rid off them if they were able to sustain some good profits.

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    3. I don't agree. T-Mobile is playing to succeed and has almost passed Sprint, adding millions of new, profitable customers and generating a lot of buzz and good will. Of course that makes them more valuable in a buyout, but it also makes them a stronger asset of DT, who is going to turn down the offer from Illiad but continue to work with them to get a better price. DT wants the money to invest in the EU market. Iliad is already working with Dish, Cox Communications, Charter Communications and others to improve its offer for T-Mobile.

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    4. Never underestimate the CREATOR of the universe. It would be in your best interest not to use the LORD's name in vain. ( Exodus 20:7 )
      Spring has some challenges but they have more unused spectrum in the top 100 markets than any carrier. ( spectrum formerly used for IDEN and Wimax )

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  5. Every new Tmobile customer is profitable. The ETF payments are one-time per customer, so buying customers this way is a smart strategy for Tmobile. Sprint has too much debt but will do the same thing, drop prices, and Verizon and AT&T will respond. All their stock prices fell today, after the announcement that Sprint will not buy Tmobile. Good prices for consumers in the short run, but bad for expansion of coverage by Sprint and Tmobile, and network investment overall.

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    1. T-Mobile is spending a lot of money to get customers and is not locking them in. The minute some else comes out with a better deal say good bye to T-Mobile uncarrier moves and welcome losses and more losses. Their strategy will only work for so long.

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    2. Duh. No strategy works forever in a very competitive market. To get the ETF paid you trade in your old phone and buy a new T-Mobile phone. That works similar to a lock. Anyway, their churn rate is low now. So the other carriers will have to work harder. ARPU is not so important if you can add millions of new, profitable customers and increase total revenue. That is what they are doing.

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  6. The plain and simple fact is: Neither Sprint nor T-Mobile have enough customers on their own to cover their fixed costs. If it costs $x billion to maintain and upgrade functionally identical LTE networks every year, why not divide up that $x billion in costs among 100 million customers instead of building redundant costs of spectrum licenses, towers, backhaul, base stations, etc., and dividing each redundant network among 50 million? Clearly, the cost of service could be greatly reduced if ALL the carriers had more scale, for dividing up fixed costs among more customers means lower cost of providing service for EVERYONE. The U.S. antitrust law and the American public are FOOLS!!!!!!! It may very well be the case that cell service is a natural monopoly. Maybe the best thing would be to turn the cell carriers into pure wholesalers, so MVNOs like Ting, PTel, Virgin, Boost, Republic, etc., can provide competitive offerings.

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    1. "Neither Sprint nor T-Mobile have enough customers on their own to cover their fixed costs." This is not true. They are both covering their fixed costs now. They are not covering their variable costs. "It may very well be the case that cell service is a natural monopoly. Maybe the best thing would be to turn the cell carriers into pure wholesalers, so MVNOs like Ting, PTel, Virgin, Boost, Republic, etc., can provide competitive offerings." The cellular market in the US is like an oligarchy, not a monopoly. There is no such thing as a natural monopoly in this business. You want to go back to the bad old days of Bell Telephone/AT&T? Where long distance cost 50c-$1/minute? Have the government run the network or designate a monopoly operator again? Well, France tried that with Orange too, and failed miserably. Want some Obamatalk to go with your Obamacare? Sounds like the definition of insanity: doing the same thing over and over again and expecting a different result.

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    2. "It may very well be the case that cell service is a natural monopoly..."

      There is no such thing as a "natural monopoly". This concept is pushed by those who want to block competition, and seize control. It is one of those authoritarian concepts that is best left on the dust-heap of history, like ":Ma Bell", single-payer healthcare, and "too big to fail".

      Competition keeps the businesses honest.

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  7. Sprint has more spectrum than Verizon and Att together. Now they just need to execute and use it. They are financially backed up by Softbank, so no worries here. With a good network and better pricing than Verizon and Att they can catch up in the near future.

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    1. This kind of thinking just got the CEO Hesse fired. Unless you think the "near future" is 8 years or bust. They have way too much debt, and need a lot more debt to lower prices and expand their network. They bled too many customers, and that continues. They keep saying they will add customers, but their forecast of 'when' has slipped over and over. Catch 22 for Sprint, but they have to drop their high prices and borrow lots more money to even have a chance. I think they will sell some spectrum when the pressure gets too high.

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  8. Sprint has the possibility to become king in postpay and prepaid. They have the money from Sofbank and the spectrum from Clearwire. If they can get their things together they can do very well.

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    1. I agree with you, but it is a very long shot. And T-Mobile already has their act together, passed Sprint in LTE coverage and will likely move past Sprint into the #3 customers spot in a couple more quarters.

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  9. Sprint's had the POTENTIAL to do great things for years and they've FLUBBED it for years . They seriously need to CLEAN HOUSE and kick out Hesse and company as they've ruined NEXTEL, CLEARWIRE/WIMAX and overcommitted to iphones. Sprint is a hodge podge MESS and has been for years. Buying Tmobile with Hesse in charge would have been another MESS. Son needs to roll heads and start fresh.

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    1. Hesse was fired. Did you read the article?

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    2. Hesse is gone.

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    3. You right!! Sprint has had a lot of opportunity to get back on track.
      I think Mr Son will change things around and big changes should be coming now that T-Mobile is no longer in their schedule. Good start was by firing Hesse. Lets see whats next.

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  10. Who cares where he is from at all??? As long as he does his job, that is what matters.

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  11. I think Massa is going to make some bold moves like T-Mobile did. They just want to make sure their network is mostly upgraded. Now that he is focusing on Sprint and not on T-Mobile purchase things are going to turn around. This guy just didn't spend over 20 billion for nothing. Next quarter should interesting for Sprint.

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