Paul Wilson: Sprint’s New Rate Plan Likely to Trigger Massive Layoffs

Before I dig into this too deep bear in mind, Sprint’s No. 1 problem is churn…

Which results in eroding margins. And when you look at anything they do going forward, it has to be weighed against that as the base line understanding before you can judge any changes as positive or negative.

Unfortunately, in the end, Sprint’s latest effort may fall short.

The new plan claims to double the data offering, even though rumor has it your speed is actually throttled back on the cheapest plan.

Next, Sprint are offering a credit of up to $350 for customers switching from other carriers. Customer acquisition is expensive enough as it is, so where’s the $350 going to come from? Straight from the bottom line is the answer, which will further erode margins.

And bear in mind, keeping a happy customer – retention – is cheaper than getting a new one – acquisition.

The $64 million question being, what’s Sprint going to do for existing customers?

Because nothing in the company’s new discount deal benefits existing customers who are kept on their original, more expensive pricing plans. Typically, carriers leave existing customer on existing plans. You have to proactively change your plan to take advantage of new pricing.

Count on the pressure from existing customers to mount.

“The challenge for Sprint is that existing prices are still too high and they are slow to re-price the base because of the enormous financial impact it would have on a company with margins as low as theirs,” said Craig Moffett, analyst at Moffett-Nathanson. “I think it is dawning on people just how hard this is going to be.”

Monday’s announcement fueled investor concern about Sprint’s margins and pushed its stock down to a yearly low of $5.39 on Tuesday. As of yesterday, it was sitting at $5.75.

Sprint’s shares are down 50 percent thus far this year and many blame it on fear of decreasing margins, problems during the network re-hab and the failed T-Mobile merger.

Yet what are we seeing in this plan so far?

The certain promise of yet lower margins if Sprint doesn’t radically grow the base and stop the churn.

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.”

I don’t think this plan itself is going to right the ship, but it shows things are going to change a lot faster with Claure on board.

I’d give it the benefit of the doubt.

Because making this promotion happen in just 3 or 4 days is a nearly an impossible challenge, yet Claure made it happen. It’s the same speed you’re going to all the other changes at Sprint happen as well.

And that includes the impossible to avoid near term layoffs.

T-Mobile CEO John Legere, still pissy over being jilted virtually at the altar, tweeted a quote by Claure saying “When your network is behind, unfortunately, you have to compete on value and price.”

Legere fired a volley quadrupling the amount of data customers get on its Simple Starter plan and adding a promotion that gives customers fleeing Sprint unlimited data at no additional charge for one year. That’s a big enticement and it came fast.

You Know Whom & Beckham

Watch these two closely; it will be an ongoing blood bath worthy of  reality TV!

When I called customer service to see what affect it had on me, I can actually save about $30 a month over where I am today. Mrs. Scribe and her tribe with 5 iPhones can go from $300 a month to $180.

That’s the dirty little secret they don’t want to get out too fast or the margin erodes faster.

How do you win this game at this stage of the game?

I’m not sure any longer, I’m just glad the decision isn’t in my lap. But I’ll tell you where I’d start; I’d retool and right size the entire staff, remove any duplications of effort and develop a customer loyalty plan, pronto.

Keep a happy customer, cut costs to the bone and the picture gets a lot better a lot faster.

To do so, you’re going to see blood running freely in the gutters around Sprint’s Leawood campus. And that just may have to happen.