Why Is Sprint’s Postpaid Phone Business Underperforming?
Sprint (NYSE:S), the smallest of the four nationwide U.S. carriers, published its Q4 FY’18 results on Tuesday, reporting a sharp decline in its lucrative postpaid phone customer base (phone customers who pay their bills monthly after using the service). In this note, we take a look at some of the trends that impacted the company’s results and what lies ahead for Sprint.
See our interactive dashboard analysis on How Has Sprint Fared In Recent Quarters And What To Expect In Q1 FY’19? You can modify our key drivers to arrive at your own estimates for the company’s revenues and EPS.
- Revenues grew 4% year-over-year to $8.4 billion.
- Adjusted loss per share of $0.04, compared to an adjusted EPS of $0.02 in the year-ago period.
How did the postpaid phone business fare?
- We estimate that the postpaid phone business accounts for close to half of Sprint’s total revenues.
- Postpaid phone base declined by 189k subscribers vs. 55k net adds in the year-ago period. This marks the steepest decline since 2015.
- Postpaid phone churn deteriorated to 1.82% compared to 1.68% a year ago.
- ARPU remained almost flat year-over-year at $50.
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Why did the business underperform?
- Sprint has scaled back significantly on its promotions, with gross adds on discounted promotional plans down 30% y-o-y.
- Moreover, the expiry of past promotions caused net subscriber attrition.
- Mounting competition particularly with equipment promotions by rivals has also hurt the carrier.
- For instance, T-Mobile added 656k postpaid phone connections while AT&T added 80k connections.
What’s the outlook like for the postpaid phone operations?
- Sprint expects postpaid phone gross adds to be slightly lower sequentially in Q1 FY’19.
- Churn is expected to trend higher year-over-year.
- A key near-term factor to watch is the planned launch of 5G.
- Sprint expects a commercial 5G launch in the coming weeks, starting with Chicago, Atlanta, Dallas, and Kansas City.
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