Apr 28, 2010 5:09 PM,

Sprint: It’s a prepaid world

By Kevin Fitchard

The operator's CEO says the battle for market dominance will be increasingly fought in the prepaid arena.

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Though Sprint (NYSE:S) is starting to live up to its promise to stem its postpaid subscriber losses, CEO Dan Hesse today declared that prepaid would not only remain a future growth engine for Sprint, but a dominant force in the industry going forward.

Sprint added 348,000 prepaid subscribers in the quarter, while losing 578,000 net postpaid subscribers, beating analysts expectations on both counts. And with the overall postpaid market contracting — more than half of all new service activations are now prepaid — Sprint is starting to fare as well or better than its competitors in the new wireless order, Hesse said on Sprint’s Q1 earnings call today.

“I think what’s happening in the industry is prepaid as a whole is beginning to cannibalize postpaid, but I don’t think our prepaid offers, from what I’ve seen, are disproportionately cannibalizing our postpaid users versus anyone else’s,” Hesse said.

Basically, the market is starting to eat itself, and whoever can protect its own postpaid subscriber base while turning its competitors' postpaid subs into its own prepaid customers will win out. Sprint made some progress toward that goal in the last quarter, according to Bernstein Research senior analyst Craig Moffet.

Though it lost more than half a million postpaid subscribers in Q1, Sprint actually gained postpaid market share in the first quarter, Moffett said. Sprint grabbed 22% of Q1 gross postpaid additions among the big three operators, up from 15% last year. But the postpaid market has contracted so much there were far fewer postpaid contracts up for grabs, down to 7.26 million from 7.8 million last year, Moffett pointed out.

“In short, Sprint is taking a slightly bigger slice of a much smaller pie,” Moffett said in a research note. “That's unlikely to be enough to get Sprint back to subscriber equilibrium, which remains the critical goal to stem the deleveraging of their fixed cost platform. Call it a moral victory, perhaps, but it remains a remarkably tough environment to affect a turnaround.”