Sprint Preps Price War
Sprint's (S) pain will soon hurt rivals as the wounded telco readies for a price war.
New Sprint chief Dan Hesse is busy picking a new management team and rewriting a strategy to lift the No. 3 wireless shop out of its subscriber-shedding nose dive. Hesse has already put a freeze on new developments in the company's bold move into fourth-generation network technology called WiMax.
Among the next steps being considered, say people familiar with the company, is a speed-up of the network migration of Nextel's iDEN users to CDMA, and a possible sale of the iDEN network.
But another move could make waves for the otherwise smooth-sailing wireless industry: Sprint is likely to overhaul its pricing plans in an effort to keep and win back customers.With more than two out of three people in the U.S. already using cell phones, the number of potential customers is limited and growth has slowed . And increasingly, one company's growth will have to come from another company's user roster. Price-cutting in wireless is almost nonexistent. Instead of lowering prices, telcos have preferred to boost monthly minutes in their promotions. That may soon change, say observers. In desperation, Sprint could cut its monthly service charges, or, in a move dreaded by other players, the company could adopt fixed-rate unlimited-usage programs similar to smaller telcos like Leap Wireless (LEAP) or MetroPCS (PCS). The speculation comes as Sprint said Friday that it was slashing 4,000 workers and closing 125 stores in an effort to bring costs down. Sprint says it will take a charge of about $200 million, or roughly $50,000 for each employee it sends off with severance pay. The Reston, Va., telco says the cost cuts will save an estimated $750 million in annual expenses. Sprint's struggles date back to a botched merger with Nextel and the exodus of big-spending Nextel customers. The decline of Sprint and Nextel has served the competition well. Both AT&T (T) and Verizon Wireless -- jointly owned by Verizon (VZ) and Vodafone (VOD) -- will have very strong subscriber numbers later this month. But good times may not last. Verizon was down $1.82 to $39.09 Friday in the wake of Sprint's announcement. Investors, already concerned that the free-spending consumer has put a lock on the money as the economy cools, are starting to take cover ahead of a damaging price battle in wireless.
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