Sprint Fights Back With No-Contract Plans

Some business practices are so common, they're taken for granted, such as money-back returns, end-of-season sales and toll-free numbers for customer service.

But all of them were once game-changing risks. It's only by reinventing the rules that businesses expand and improve.

That lesson came to the forefront this week, thanks to Sprint Nextel(S Quote). The country's third-largest provider of cell phone service said it lost $594 million in the first quarter, when a record number of contract subscribers defected. These customers have been the backbone of the cellular service business.

But don't count Sprint out yet. Its Boost Mobile division, which allows customers to pay for service month to month, has been a huge success, adding almost 800,000 new customers in the quarter.

While long-term contracts have been standard for years, more companies are discovering the value of flexibility by offering month-to-month plans. Allowing customers to bypass contracts might be the key to growth for wireless companies.

The shift could be viewed as a byproduct of an economic recession that has made consumers wary of contracts that lock them into prices for years. When money's tight, families are also less willing to hand out phones to their kids. With layoffs rampant, businesses are slow to renew service plans.

Worldwide sales of mobile phones are expected to drop about 20% this year, according to technology research firm In-Stat. Nokia(NOK Quote), which sells more cell phones than any other company, saw profits tumble 90% in the first quarter because of declining sales.