I’ve just concluded a day and a half with Sprint at their annual analyst day. At this point I’m sitting at Kansas City airport – one of the easiest to get through in the world – unfortunately waiting for a few hours because of a delay to my flight. But this gives me an opportunity to set down some thoughts while they’re still fresh in my mind.

Housekeeping & links

I wrote up my thoughts on last year’s event here. More posts on Sprint can be found at this link. I used Twitter to share some of my thoughts as the event went along and you can see that thread here.

First, the good news

Sprint’s come a really long way since last year’s event, and it’s made progress in several key areas. Dan Hesse (the CEO) has the same set of three priorities now as he outlined last year, which is always a nice surprise at these events! They are the brand, financial stability and the customer experience. And on the last two at least I think they’ve made significant progress. Financial stability is much approved to the point that the company is throwing off a decent amount of cash, has a more manageable (though still substantial) debt burden and is improving margins. They’ve also done a sterling job of improving the customer experience, where the key proof point is the 40% reduction in calls to customer care they’ve seen over the past year.

The company is now in a much better place as a result. Many of their customers have experienced improvements in customer care and in the overall experience of being a Sprint customer. Neither customers nor investors need have significant concerns about the short-term financial viability of the company. And the launch of the $50 unlimited Boost plan has turned around a key metric for them in the past quarter – iDEN net adds. That opportunity is a really great one for them for the foreseeable future because they can add a ton of customers at very low subscriber acquisition costs (1/5 of postpaid adds) and zero incremental capex because the iDEN network is so empty. 

The senior executives were approachable and frank, which is always refreshing. Dan Hesse himself was available to the analysts for informal conversations over dinner, along with many of the other execs, and the new CFO is disarmingly frank and blunt. Both tell a good story. And they have achieved an enormous amount over the past year in these key areas – that progress is impressive and they deserve a good deal of kudos for it.

Now, the bad news

The bad news is that it isn’t yet clear how Sprint is going to turn around what is now its single biggest challenge – continuing net subscriber losses. Even though churn is improving, and that’s a big step, the problem is gross adds, which continue to be well below where they should be, and massively lower than they have been in the past. No-one is adding as many subs as they have in the past because the market’s slowing down, but Sprint at least needs to win its fair share, and it hasn’t done for some time now. What I was looking for more than anything going into this event was a solid story about how Sprint will grow gross adds, but I didn’t feel like we got it.

When I put that question directly to Mr Hesse, his response was that the gross adds strategy was everything they’d talked about over the day and a half. While that’s part of the answer, my overwhelming impression was that all the initiatives are very long term, and we’re left (along with Sprint) waiting for them to kick in. A constant theme throughout the event is that perception lags reality, and while Sprint has improved network performance and customer experience, these are things that will take a long time to flow through into customers’ perceptions and even longer to flow through into non-customer perceptions. 

Other things Sprint is “waiting for” (in my view) are:

• 4G rollout – yes, in theory, Sprint will have a two-year edge over Verizon and an even bigger edge over AT&T. But it will only roll out a handful of markets this year and only make serious progress next year. And handsets won’t begin to show up until late next year. And in the meantime customers who don’t live in the mostly tier 2 markets that will be first to light up will not see any impact
• The Pre – yes, this one is coming soon so the wait shouldn’t be too long, but there were echoes of the many mentions of the Instinct at the last event and the great hopes placed in that device. The Pre is a more truly competitive device than the Instinct, but it won’t be a real game changer for Sprint anymore than the Instinct was.
• Economic recovery – a large part of Sprint’s performance among business customers – especially in the Nextel segment – is dependent on economic recovery, and that may be some time in coming. 
• Brand rollout – Sprint is changing is brand messaging again (in contrast with Verizon, which has had a fairly consistent message for 7 years, and AT&T, which has been consistent for 3), and I’m still not convinced that the new branding makes any more sense than the old branding. Even if it works, it will take considerable time to kick in.

I don’t want to give the impression Sprint is simply sitting around waiting for things to happen – it is proactively working on its three key priorities and making progress in all three areas (though I’m most dubious about the brand, as I just mentioned). But these are all long-term initiatives with an uncertain payoff at the end, and in the meantime there is little Sprint is doing that will provide a short-term boost to postpaid gross adds. 

In summary

Sprint is undoubtedly in a better position than it was a year ago. It has solved many of the fundamental issues it faced then, and made improvements in other areas. But I remain concerned that they don’t have a long-term strategy that gives them a clear view of when they are likely to see positive postpaid net adds again. All the other things they’re doing are good, and will improve other metrics including margins and cash generation. But unless they can start growing again they will remain subscale compared with Verizon and AT&T – their two most significant competitors – and will have significant cost disadvantages flowing from that lack of scale and the fact that they’re running two separate networks. 

Over the next couple of years, if Sprint does start to present a more significant threat to the big two, they will respond aggressively, and I don’t think Sprint will be in a position to fight back. It has less cash to spend on advertising, it has less headroom to increase device subsidies or otherwise make its offerings more attractive, it will be operating on three network technologies which are becoming increasingly marginalized (iDEN, CDMA and WiMAX) when competitors are operating on LTE and gaining all the scale advantages that will offer. 

Having said all that, I’m genuinely excited about the Pre. From what little we saw of it, I was impressed that it will be a compelling device for people willing to put up with the perceived shortcomings of Sprint as a carrier, although the impact may be significantly hampered by whatever Apple and AT&T announce in early June. I also believe that if the 4G rollout is handled right it will be the one true differentiator that Sprint has for mainstream customers and could provide a good boost (no pun intended). And the management team at Sprint is smart, focused and hard working with a track record of executing on a clear strategy, so if anyone can do it, they can.

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I just wrapped up a day and a half at AT&T’s business analyst event here in New Jersey. I “live tweeted” the event to some extent – see here for a broad view of some of the themes discussed there.

But one of the things I was most encouraged about and interested in was some of AT&T’s activities that I would classify as fitting within my social telco definition. As AT&T expands into the cloud computing space, it will be launching storage-as-a-service and compute-as-a-service offerings in the coming months. But it will also be developing something it calls “platform-as-a-service”. It’s not the best name, because it’s not all that descriptive – as a colleague said, it reminds you of Salesforce’s efforts to expand from its core CRM-as-a-service proposition to something broader. But the concept is good, even if the nomenclature isn’t.

What platform-as-a-service would do is expose both computing and network functionality through APIs to third parties. This would allow those third parties – whether ISVs, enterprises developing their own apps or even web players – to create apps that would be able to issue commands to AT&T’s compute and network infrastructure. The focus in AT&T’s presentation on the topic was on the compute-type commands, but the plan is very much to roll out more or less the full set of Parlay X commands over time in handfuls at intervals over the next year or two, starting later this year. 

One of the things I found interesting about this is how AT&T is approaching some of the greatest challenges associated with exposing this kind of functionality to third parties: namely, verifying identity and providing security in order to protect privacy. AT&T is piggybacking off its efforts on the mobile application side here, benefiting from its DevCentral developer community and the processes and interfaces developed to facilitate the development of mobile apps by partners. This is probably a good model for other telcos with well developed mobile developer ecosystems since a lot of the legwork has already been done. 

I’m going to be requesting a more detailed briefing on these activities, and especially on the linkages between consumer and business efforts in this area, and will likely put something together for publication subsequently. But this certainly looks like an interesting and promising initiative from AT&T in this area, and one that other telcos can learn from.

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