Sprint plans targeted-services strategy to regain prepaid lead

Like its past few quarters, Sprint’s (NYSE:S) fourth-quarter earnings were focused less on its financials and more on its plans to improve them. Sprint lost 504,000 postpaid subscribers in the quarter, a more than four million year-over-year improvement, but a loss nonetheless. Sprint also had its second straight quarter of a slowdown in prepaid subscriber additions. The carrier added 435,000 prepaid subs in Q4, marking the first substantial sequential decline in net growth since it introduced its $50 Unlimited plan last year.

Sprint’s larger competitors Verizon and AT&T both added wireless subscribers in the quarter, 2.2 million and 2.7 million, respectively.

Bernstein Research analyst Craig Moffett drew on his favorite analogy for Sprint, comparing it to a swimmer learning to swim as water is being drained from the pool. With negative ARPU growth at a 1.8% decrease, he said a return to growth will be all the more challenging for Sprint.

“Or perhaps a better metaphor for Sprint's fourth quarter is the student who studied furiously to turn around a string of bad grades in math (post-paid),” Moffett said in a research note. “They passed. But Mom isn't going to be happy about what happened in English.”

To improve its prepaid report card, Sprint is repositioning its offerings into a multiple-services strategy, using its different brands to target different parts of the industry. Sprint acquired its mobile virtual network operator (MVNO) Virgin Mobile last July. It also operates wholly owned subsidiary Boost Mobile, which was a Trojan horse for the company until competition caught up. Sprint’s Assurance brand, a government funded wireless service, will also play a role in Sprint’s prepaid strategy. Hesse said it would use each of these services to target specific market segments with unique value propositions. This will give Sprint more flexibility and allow it to target different competitors without having to pull price levers in every segment of the market, he said. Sprint will have its prepaid strategy fully rolled out by end of Q2.

“There are very distinct segments of the market with very unique needs and wants,” added Dan Schulman, the former CEO of Virgin Mobile and now head of Sprint's pre-paid business. “They shop in different channels, want specific handsets and specific value propositions. What you will see from us on the prepaid side, and we’ve just started to implement some of this, is to create brands with very unique value propositions that appeal to very specific segments of the market.”

On the postpaid front, Verizon Wireless and AT&T both recently cut the price of their unlimited voice plans by $30 to $70, leaving Sprint stuck in the middle with high per-subscriber costs and a $100 “Simply Everything” plan that appears more expensive. Hesse noted that Sprint’s plan is actually a better value after add-ons to AT&T and VZW’s plans are taken into consideration. He also added that while competition had taken a toll on Sprint, it’s beneficial to Sprint that consumers are spending more time thinking about what they spend on services versus just the price of the handset. He said that Sprint has more education to do in terms of making consumers aware that adds-on make its competitors prices higher.

“We’ve made a lot of progress in terms of brand health,” Hesse said. “Unfortunately, we haven’t made as much progress with non-customers, but that will come.”

Hesse said that Sprint’s "Any Mobile, Any Time," which allows for unlimited mobile-to-mobile calls, is helping to bring in new customers. Sprint will also pitch affiliate iPCS, purchased in December, to its postpaid Nextel customer base, and Virgin Mobile’s Helio line to its new CDMA contract customers.

Sprint also has ambitious plans for its 4G WiMax business in 2010. Hesse said Sprint plans to expand its coverage, as well as add more devices, especially phones, that can run on the 4G network. “Expanding the coverage of 4G in 2010 will be an important catalyst in driving Sprint’s postpaid subscriber growth,” Hesse said. “Expect that both postpaid and total subscriber losses will improve in 2010 as opposed to last year.”