Sprint shows signs of recovery - US operator making strong subscriber gains in prepaid and wholesale, while postpaid base is stabilising

US operator Sprint is poised to begin rebuilding its market share, helped by strong growth in its prepaid and wholesale businesses, and the launch of a raft of new devices available for its fledgling '4G' WiMAX network, which is helping to limit postpaid subscriber losses. The decline in Sprint's postpaid subscriber base over the last few years has been a key factor behind the third-placed operator losing ground to larger rivals Verizon Wireless and AT&T, and has meant that the firm has not reported a net quarterly profit since Q1 2008.

In Q1 2011, Sprint reported its best subscriber net additions for five years, adding 1.121 million new customers in the period. This saw its total subscriber base hit 51 million, and built upon a strong performance in the previous quarter (Q4 2010) when it recorded net additions of 1.097 million. Sprint's net loss in the first quarter narrowed to US$439 million, a significant improvement on the US$865 million loss a year ago.

The 2.218 million net increase in subscribers over the last two quarters has been due mainly to strong customer growth at its prepaid and wholesale segments. Sprint has several high-profile prepaid brands, including Boost Mobile, the low-cost Assurance Wireless brand, and the youth-orientated Virgin Mobile USA. Sprint's Common Cents Mobile brand will this month be merged with Virgin's payLo offering. Virgin also has a prepaid mobile broadband offering known as Broadband2Go. Sprint does not break-out individual subscriber data for these sub-brands, but its combined prepaid customer base reached 13.1 million in the first quarter, representing quarterly net additions of 864,000 and a 19 percent increase year-on-year. Sprint controls almost 30 percent of the US prepaid sector - making it the clear prepaid market leader - and its share is growing fast, taking 41.6 percent of prepaid net additions in Q1.

The operator is also rapidly expanding its wholesale subscriber base, which was up 35 percent year-on-year to 4.9 million in Q1 2011. These customers now account for almost 10 percent of Sprint's total. Sprint highlighted a US$20 million annual increase in service revenue at its wholesale division in the quarter, which it attributed to revenue growth from its 3G MVNOs. Sprint has 30 MVNOs on its network, more than any other US operator.

Meanwhile, Sprint seems to have finally shored up losses in the lucrative postpaid segment, which still accounts for the majority of its customer base (65 percent). In Q4 2010, Sprint reported postpaid net additions of 58,000, its best return in postpaid for over four years (since Q2 2006) and drawing a line under several successive quarters of postpaid losses. However, this trend was not continued into Q1 2011, which saw Sprint shed a further 114,000 postpaid customers, a blip that has been partly attributed to the long-awaited launch of the iPhone by Verizon Wireless in February. The postpaid losses primarily relate to Sprint's iDEN network (which it is due to begin phasing out in 2013); and its PowerSource customers (which use special hybrid devices that access both the iDEN and CDMA networks). Excluding the PowerSource losses (-57,000), Sprint added 310,000 CDMA-based postpaid subscribers in the quarter.

Sprint's WiMAX-based 4G network (now running on partner Clearwire's network) was commercially launched back in 2008 giving it a significant first-mover advantage over rival operators launching LTE, which was not commercially available in the US until last year (notably from MetroPCS and Verizon Wireless). By Q1 2011, Sprint had launched the network in 71 regional markets covering 28 US states.

While Sprint does not break-out the numbers of subscribers to its 4G service, Clearwire noted recently that it had 4.856 million wholesale connections on its network in Q1 2011 - and the vast majority of these are likely to be Sprint users. Sprint said it had launched or announced 22 4G devices by Q1, which it claimed was the largest 4G portfolio of any US operator. The quarter saw the launch of the operator's third 4G phone - the HTC EVO Shift 4G - as well as the Overdrive Pro 3G/4G Mobile Hotspot by Sierra Wireless. It also noted that it had two 4G tablets in the pipeline: the BlackBerry 4G PlayBook and HTC EVO View 4G, as well as two more handsets – the HTC EVO 3D and the Nexus S 4G.

Joss Gillet, Senior Analyst, GSMA Intelligence:

The growth in prepaid is currently having a significant impact on US market shares. On the one hand, prepaid helps operators such as Sprint to stabilise their market share of connections by allowing them to report high quarterly growth (offsetting postpaid net losses), which also helps to stabilise ARPU. On the other hand, a prepaid installed base is often inflated by inactive connections which – alongside multiple device or SIM ownership – can distort true market penetration. Prepaid growth is clearly helping Sprint to stabilise its top-line market share, due in part to its 30 MVNOs, which compares to an average of just 20 at AT&T and Verizon Wireless. Sprint owns one third of the MVNOs in the country of which the vast majority are prepaid-centric. Demand for contract-free services is growing rapidly, now helped by operators' smartphone offerings in this segment. With smartphones rapidly becoming more affordable, prepaid data services will play an increasing important role in revenue growth. Prepaid specialist Cricket Communications (Leap Wireless) recently recorded its one-millionth smartphone customer, while MetroPCS reported significant uptake of its Android smartphones which, along with its Wireless For All offer, led to a reduction in churn in Q1 2011. US Cellular could also benefit from an aggressive prepaid push which could counter customer net losses, which have been affecting its top line for the last two years. Nevertheless, fighting postpaid churn remains the key battleground for Sprint as it seeks to return to profitability. Based on the latest indicators, it looks like the operator is finally getting back on its feet.

Sprint US mobile connections, Q1 2011
Source: GSMA Intelligence, company data