August 19, 2014 / 9:55 PM / 5 years ago

Sprint's new pricing plans may not be enough to curb churn

WASHINGTON (Reuters) - Sprint Corp’s cellular plan with more generous data allowances may fall short in overcoming defections by clients concerned about disruptions in the No. 3 cellular carrier’s network, analysts say.

People walk past a Sprint store in New York December 17, 2012. REUTERS/Andrew Kelly

The new plan, which doubles the company’s data offerings and provides a credit of up to $350 for customers switching from other carriers, does not benefit existing Sprint subscribers, who are kept on their original, more expensive pricing plans.

“The challenge for Sprint is that existing prices are still too high and they are slow to reprice the base because of the enormous finiancial impact it would have on a company with margins as low as theirs,” said Craig Moffett, analyst at MoffettNathanson.

The new pricing plan, announced on Monday, fueled investor concern about Sprint’s margins and pushed its stock down 4.1 percent to a year low of $5.39 on Tuesday.

“I think it is dawning on people just how hard this is going to be,” said Moffett.

Sprint’s shares are down 50 percent so far this year, hammered most recently by the collapse of its longtime plan to acquire T-Mobile US Inc, a move that could have reduced competition and created a stronger competitor to industry leaders Verizon Communications Inc and AT&T Inc.

Analysts said the pricing strategy unveiled by newly appointed Sprint Chief Executive Marcelo Claure could backfire and cause further customer defections, already high as the company undergoes a network overhaul that has caused disruptions in service.

Sprint may not be able to withhold the offer from its highest-paying customers for much longer if it wants them to stick around.

“They will have to match this effort with some type of retention effort,” said Mark Stodden, analyst at Moody’s Investor Service.

“I don’t think this plan itself is going to turn the company around, but the speed at which they have introduced this change following the new CEO is notable and suggests a more aggressive stance,” he said.

To be sure, Sprint’s new offers do not necessarily represent a cut in revenue, analysts said.

“They are not taking existing products and pricing lower; they are giving away more data for the same price. When it comes to the economics of mobile data, there is no incremental cost for giving users more data,” said Jan Dawson, analyst at Jackdaw Research.

Still, the aggressive new pricing plan marks a shift in strategy for Sprint, whose average revenue per postpaid subscriber is one of the industry’s highest despite its also having the highest customer defection rates.

“I think we were going the wrong way,” CEO Claure told Reuters on Monday.

“It is not a secret that we are losing more customers than we are gaining, but we believe if we put together good offers that deliver more value to consumers, customers are going to come to Sprint.” he said.

The carrier is expected to announce the launch of the Aquos Crystal, a new phone it co-developed with parent company SoftBank, later on Tuesday and new pricing plans later in the week.

Rival T-Mobile wasted no time in trying to make hay of Claure’s admission that Sprint’s network was not up to par.

T-Mobile CEO John Legere tweeted a trial ad publicizing a quote by Claure saying “When your network is behind, unfortunately, you have to compete on value and price.”

Reporting by Marina Lopes; Editing by Dan Grebler

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