2-Sprint Nextel’s Stumble

Sprint Nextel appears to be in real trouble. A recent Wall Street Journal article offered a long analysis of the company and its current challenges. Sprint Nextel is illustrating the way market share is lost in most markets. In short, Sprint Nextel is losing the most profitable customers (post paid contract subscribers) to the top two carriers, AT&T and Verizon, as well as to the fourth ranked competitor, T-Mobile USA. Sprint Nextel’s losses in customers may be as much as 2% of these valuable customers in a quarter. These are the best customers, so the company’s percentage loss in revenue would be much higher than the percentage loss in number of customers.

How did this loss happen? Analysts blame the botched integration of Sprint with its acquisition, Nextel. Customers have determined that Sprint Nextel has poor customer service and low network reliability.

This brings us to the way market share shifts in most markets. Market share moves from one supplier to another most often due to failure, not to success. Some competitor, in this case Sprint Nextel, fails to provide a level of service, functionality and price that other competitors can and will supply. This is failure, which drives customers into the arms of competition. Once Sprint Nextel fails then some of its customer volume leaves it for better competitors. Note that these better competitors were not good enough to take market share away from Sprint Nextel without Sprint Nextel’s failing in the first place. If they could have, they would have created a “win” and taken the share outright. Instead, the share is moving in this market largely on the basis of Sprint’s “failure” rather than the other carriers’ “success”.

This is going to be a long turnaround for the hapless new CEO at Sprint Nextel. Once a company develops a reputation for poor reliability, it takes a long time to win it back.

You can see the damage done to Sprint Nextel in the most recent pricing wave in the industry. The other three competitors announced unlimited minute voice plans for their wireless services at about $100 per month. Sprint Nextel, of course, had to follow. But they followed with an $89 a month plan that offers the unlimited voice minutes and also unlimited data minutes. Sprint is offering a price about 10% lower than their competitors for a product somewhat better, at least for some of the customers in the market. This is a typical characteristic pricing scheme for a Price Shaver. Not many Price Shavers do well over the longer term. They have to offer a lower price because customers don’t think their product is as good as the others’. This strategy leads to weak customers, low returns and long recovery periods.

Posted 3/10/08

Update:

Sprint Nextel could not overcome its poor Reliability reputation. That poor reputation even carried over into its next owner. T-Mobile gained 80% of the acquired company’s postpaid market.  It took over Sprint in 2020.  Sprint no longer exists.  A reputation for Reliability accompanies most successful firms in Hostility. See HERE for more on Reliability in tough markets.

In the first quarter of 2021, US wireless subscription market shares by US carrier looked as follows: AT&T 44.8%, Verizon 29.1%, T-Mobile 24.9%, US cellular 1.2%.  AT&T has gradually been gaining share from Verizon and T-Mobile.

But look what happened in the Sprint acquisition. In the fourth quarter of 2019 T-Mobile had 15.9% while Sprint had 15.9% for a theoretical total of 31.8% for the combined company.  So, T-Mobile by the first quarter of 2021, after taking over Sprint, saw its market share fall to 24.9%, a drop of nearly 7 percentage points.  The two best consultants in the world are your customers and competitors. They will infallibly advise you on your product. See HERE for more explanation.

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THE SOURCES OF STRATEGYSTREET.COM: For over 30 years we observed the evolution of more than 100 industries, many hostile.  We put their facts into frameworks applicable to all industries and found patterns.  Strategystreet.com describes the inductive results of these thousands of observations and their patterns.