So How's That Palm Pre Working Out for You, Sprint? [UPDATED]
The Palm Pre may have been the most successful handset rollout in Sprint’s history, but it hasn’t stopped the carrier from hemorrhaging customers in the months following its launch.
In its second quarter–the first with the Pre in its lineup–Sprint (S) lost 991,000 postpaid subscribers. And in its third, reported yesterday, its lost 801,000. So subscriber loss, while unquestionably gruesome, is diminishing.
How much of this is due to Palm’s (PALM) Pre? Not that much, says CL King & Associates analyst Lawrence Harris, who believes the Pre had only a moderate impact on Sprint’s postpaid subscriber base.
“Within postpaid, the number of CDMA-only subscriber losses was about 100,000 in the September quarter, compared to the 200,000 in the June quarter,” Harris wrote in a research note to clients. “At Sprint, the Palm Pre is a CDMA-only postpaid device. The number of Sprint postpaid subscribers upgrading their handsets was slightly higher in the September quarter than in the June quarter at just over 2.0 million.”
According to Harris, “This number provides some indication of the available market for all high-end devices at Sprint. In Palm’s August quarter, 85% of the company’s sales went to Sprint. Given the absence of growth in Sprint’s CDMA postpaid category, it appears likely that most of the Palm Pre sales went to existing Sprint subscribers as opposed to winning customers from other carriers.”
That would seem to be the case. Sprint rivals AT&T (T) and Verizon Wireless (VZ) each added subscribers during the second quarter–1.4 million and 1.1 million, respectively. So if the Pre did anything for Sprint, it helped to stem CDMA postpaid losses a bit.
And that’s something, right? After all, there’s no panacea for Sprint’s affliction–well, perhaps there is, but it’s locked up in an exclusivity agreement with AT&T (T). Still, when Sprint last reported earnings, CEO Dan Hesse said the carrier expected to sign up more new customers as the Pre gained wider distribution through retail outlets like Best Buy (BBY) and RadioShack. And that doesn’t really seemed to have happened. Perhaps next quarter after Sprint launches the Pre’s not-quite-cheaper sibling, the Pixi.
UPDATE: A quick addendum. In a research note this morning, Bernstein Research analyst Craig Moffett notes that while Sprint has reduced subscriber losses a bit, the cost of doing so has been worrisomely high.
“Yes, net subscriber losses were better,” Moffet explains. “But the cost was very high. Post-paid equipment subsidies soared to $139 per subsidized subscriber in Q3 (up 39 percent from last year), as the company recovered just 36 percent of their equipment costs….Yesterday’s results illustrate why it may not be possible for Sprint to have its cake and eat it too. After all the drastic cost cutting, after all the efforts to refresh the product line, after all the price cuts and new pricing plans, Sprint was able to manage only a modest improvement. Not growth, just a slightly slower rate of decline. And that Herculean effort almost broke the bank. The huge costs of even marginally improving gross additions (and the rate of net subscriber loss) crushed margins.”