Sprint's Boost Mobile Service Could Challenge Top-Tier Players
May 06 2009 - 1:39PM
Dow Jones News
Sprint Nextel Corp.'s (S) pre-paid Boost Mobile service showed a
remarkable turnaround in the first quarter and could quickly
challenge the giants in the industry for subscriber growth.
Boost represents a glimmer of hope for Sprint, with its rapid
growth fueled by consumers looking to save money and get away from
contracts. Those customers, however, yield less revenue and profit
than people who sign a contract. Sprint continues to lose higher
end subscribers at an alarming rate and doesn't see a recovery
until at least the second half. Until then, it must rely on Boost's
growth.
"In the second quarter we continue to see improvement from the
first quarter," Boost Mobile President Matt Carter told Dow Jones
Newswires on Tuesday. "Our game here is not to go backwards."
In eight weeks of service - it launched in February - Boost's
new $50 unlimited plan added 764,000 new pre-paid customer. That's
a swing of 1 million subscribers from the fourth quarter, when the
old Boost pre-paid plan lost 314,000 users.
With a full quarter, new handsets and promotions, and Carter's
expectations of even better results, Boost could conceivably add
more than 1 million customers in the second quarter. Carter
wouldn't confirm the estimate but didn't argue with the math
either. He noted there hasn't been a slowdown yet in the second
quarter.
That would put it in the range of top-tier players Verizon
Wireless and AT&T Inc. (T), which in the first quarter added
1.3 million and 1.2 million subscribers, respectively. It also
illustrates the power of pre-paid at a time when the other national
carriers, Sprint and T-Mobile USA, struggle.
To be sure, Boost attracts customers who by nature spend less
money and generate fewer profits for parent Sprint. But it's also
one of the few remaining areas of growth for the industry.
Regional players MetroPCS Communications Inc. (PCS) and Leap
Wireless International Inc. (LEAP) also have benefited from
consumers switching to cheaper pre-paid plans, but are also
starting to acknowledge the threat from Boost.
"Back in January, Leap and Metro laughed at us," Carter said.
"Now, MetroPCS believes Boost is its most formidable
competitor."
MetroPCS and Leap report first-quarter results on Thursday.
MetroPCS already preannounced 684,000 new customers in the period -
a record for the regional player.
Boost's start wasn't without hiccups. The service runs off of
the Nextel network, which isn't optimized for text messages, and
the flood of customers with unlimited text message capability
overwhelmed the network. Carter said it would be resolved on
Thursday.
Carter dismissed the notion that the Nextel network would need
to be upgraded if the current growth trends continue.
"Even with our wildest projections, we have capacity to meet
demand," he said.
Boost's success, of course, begs the question of what Sprint's
margins will look like down the line, particularly as it continues
to lose more valuable contract customers willing to spend more on
data plans and other bells and whistles. It lost 1.3 million
post-paid subscribers in the period.
"We do our part to financially strengthen the business," Carter
said, noting it was important to have a strong offering on both the
post- and pre-paid end.
Sprint Chief Executive Dan Hesse called for improved post-paid
business in the second half. The carrier is banking on the Palm
Inc. (PALM) Pre to spark interest in its service.
-By Roger Cheng, Dow Jones Newswires; 201-938-2020;
roger.cheng@dowjones.com