So How’s That Palm Pre Working Out for You, Sprint? [UPDATED]
by John Paczkowski
Posted on October 30, 2009 at 4:00 AM PT
The Palm Pre may have been the most successful handset rollout in Sprint’s history, but it hasn’t stopped the carrier from hemorrhaging customers in the months following its launch.
In its second quarter–the first with the Pre in its lineup–Sprint (S) lost 991,000 postpaid subscribers. And in its third, reported yesterday, its lost 801,000. So subscriber loss, while unquestionably gruesome, is diminishing.
How much of this is due to Palm’s (PALM) Pre? Not that much, says CL King & Associates analyst Lawrence Harris, who believes the Pre had only a moderate impact on Sprint’s postpaid subscriber base.
“Within postpaid, the number of CDMA-only subscriber losses was about 100,000 in the September quarter, compared to the 200,000 in the June quarter,” Harris wrote in a research note to clients. “At Sprint, the Palm Pre is a CDMA-only postpaid device. The number of Sprint postpaid subscribers upgrading their handsets was slightly higher in the September quarter than in the June quarter at just over 2.0 million.”
According to Harris, “This number provides some indication of the available market for all high-end devices at Sprint. In Palm’s August quarter, 85% of the company’s sales went to Sprint. Given the absence of growth in Sprint’s CDMA postpaid category, it appears likely that most of the Palm Pre sales went to existing Sprint subscribers as opposed to winning customers from other carriers.”
That would seem to be the case. Sprint rivals AT&T (T) and Verizon Wireless (VZ) each added subscribers during the second quarter–1.4 million and 1.1 million, respectively. So if the Pre did anything for Sprint, it helped to stem CDMA postpaid losses a bit.
And that’s something, right? After all, there’s no panacea for Sprint’s affliction–well, perhaps there is, but it’s locked up in an exclusivity agreement with AT&T (T). Still, when Sprint last reported earnings, CEO Dan Hesse said the carrier expected to sign up more new customers as the Pre gained wider distribution through retail outlets like Best Buy (BBY) and RadioShack. And that doesn’t really seemed to have happened. Perhaps next quarter after Sprint launches the Pre’s not-quite-cheaper sibling, the Pixi.
UPDATE: A quick addendum. In a research note this morning, Bernstein Research analyst Craig Moffett notes that while Sprint has reduced subscriber losses a bit, the cost of doing so has been worrisomely high.
“Yes, net subscriber losses were better,” Moffet explains. “But the cost was very high. Post-paid equipment subsidies soared to $139 per subsidized subscriber in Q3 (up 39 percent from last year), as the company recovered just 36 percent of their equipment costs….Yesterday’s results illustrate why it may not be possible for Sprint to have its cake and eat it too. After all the drastic cost cutting, after all the efforts to refresh the product line, after all the price cuts and new pricing plans, Sprint was able to manage only a modest improvement. Not growth, just a slightly slower rate of decline. And that Herculean effort almost broke the bank. The huge costs of even marginally improving gross additions (and the rate of net subscriber loss) crushed margins.”
Comments
hmmmm…
Posted by mike Diaz at October 30th, 2009 at 10:56 amno comments, complaints and excuses from the “I bought beta” group? just kidding, =) dont bring hate.
D
I had opined in a comment to a recent article by John Paczkowski entitled “Sprint: Even Fewer Dropped Calls, Callers”, about the cause of Sprint’s postpaid subscriber loss and how to fix it. But as is always the case with new facts and arguments – essentially those presented in this article, usually provides new insight and thus demands further reflections on previous ideas. So let’s take a further look at Sprint’s current situation with regards to the Palm Pre.
Compare Palm Pre sales at Sprint versus iPhone sales at AT&T when first released:
There are many consumers that take a wait and see attitude when a new device or technology surfaces, and the Palm Pre is no exception. When the iPhone was released, its first three quarter sales at AT&T were: 900,000 (4Q 2007), 800,000 (1Q 2008), and 400,000 (2Q 2008). In comparison, the Palm Pre 1Q Sale (i.e. first full quarter) was estimated at 600,000. But in fairness, the iPhone was introduced at $600 (while the Palm Pre was introduced at $300).
Why the price of the phone matters:
We also know that price – especially in this challenging economy, is both a catalyst and hindrance to action. It’s been argued that even with the Palm Pre’s recent price reduction, it still cost $250 at Sprint before a $100 mail-in rebate; versus Verizon selling a number of BlackBerry smart phones for $0.99, and consequently Verizon has continued to add subscribers. Now back to the iPhone. After a significant price reduction, the 3Q 2008 sales for the iPhone jumped to 2.4 million, pretty impressive! But it also show the effect price has on a product. The vast majority of consumers sat on the sidelines until the iPhone saw a signification price reduction to $200. The same may also be the case for the Palm Pre, but we are yet to see such a drastic price reduction from Sprint. Sprint could offer a one month special in November of $0.99 to really test the market – but alas, it’s her choice!
What Sprint can learn from Verizon:
AT&T gained a lot of new customers because it was reported that Apple had signed a five year agreement. So it was either going to AT&T or no iPhone. In the case of Sprint, the minute it was announced that the Palm Pre was coming to Sprint, Verizon announced that they were going to get the Palm Pre in early 2010. This is like the British navy (a prevailing world power at the time) in the eighteenth century, firing cannon (or warning) shots from the brows of her ships. Even AT&T stated that they also will get a Palm device. These actions were devised to take the wind off of Sprints “sails” (as regards to a ship) from the outset of the launch of the highly acclaimed Palm Pre smart phone. So if a Verizon customer can simply wait a few months, then their patience will be rewarded. Verizon’s announcement that they will get the Palm Pre was a tactical move that unfortunately for Sprint, caught them flat-footed. Verizon effectively nullified the exclusivity argument. Business is not just about service with regards the customer, and warfare with competitors, it is also strategy, and therein lies leadership. Don’t get me wrong, I believe that Sprint has shown a lot of boldness in the last few months, for example, free mobile to mobile, reducing their churn rate, etc., but neglected one of the biggest weapons in business, and that is price. Google’s dominance is based upon the “free” model. Verizon has used the “free” model to push the BlackBerry smart phones. And Sprint is selling the Palm Pre phone for initially $300, and more recently $250, if one does not like dealing with mail-in rebates. I just don’t get it. Or maybe it is Sprint that just does not get it!
The Missing Piece of Sprint’s puzzle:
The argument that the cost of “Post-paid equipment subsidies soared to $139 per subsidized subscriber in Q3” cannot be ignored. But is Sprint alone in this conundrum? AT&T used it to their advantage. Verizon used it to their advantage. So why can’t Sprint use it to their advantage? Clearly a lot of things they (Sprint) have done have worked. Sprint has matched AT&T in the smart phone segment (with the Palm Pre smart phone and it’s awesome user interface and multitasking smarts of the WebOS operating system); Sprint has surpassed both Verizon and AT&T in providing the lowest priced monthly plan (and introduced the innovative free mobile to mobile feature); but Sprint is yet to match Verizon’s aggressive marketing of free BlackBerry smart phones. Maybe Sprint is one piece away from completing the puzzle. Let’s hope she sees it before it is too late.
Posted by Andrew Augustine at October 30th, 2009 at 6:09 pm