Sprint Nextel: not easy being #3
The #3 US cell phone company keeps slipping behind AT & T and Verizon. Sprint and Nextel merged in 2004, hoping to build up enough bulk to take on the big guys. But the subscriber base has been stolen away by its rivals and it just announced it will have to close 8% of its retail outlets and fire 4,000 employees. The company had lost almost a million customers over the 4th quarter last year.
The value of Sprint Nextel, which was around $70 billion after the merger, now stands at $25 billion. Its problems have been based in part on deteriorating service, something that won't be helped by layoffs. And its woes have been compounded by the credit crunch, as it seems to have more marginal customers than the two industry leaders. Even worse for investors, it is unlikely that they will be bailed out by a private equity buyout given the state of the economy and the credit crunch.
Sprint's problems may signal a trend in the industry, according to a Wall Street Journal article ("Investors Run From Sprint", 1/19/08)
Some analysts questioned whether Sprint's problems signal a looming slowdown throughout the wireless industry, as the proportion of U.S. consumers already owning cellphones has now reached about 80%. AT&T and Verizon Wireless, a joint venture of Verizon Communications Inc. and Vodafone Group PLC, have posted strong results in recent quarters, but Christopher King, an analyst at Stifel Nicolaus, says much of their growth is now coming from stealing away Sprint's customers, rather than from attracting new cellphone users. "The industry for the past year has been feeding off the carcass of Sprint Nextel," Mr. King said.
It may well be that the industry will be reduced to a duopoly, with Sprint Nextel and T-Mobile relegated to also-ran status. But the end of easy growth will make life harder for AT & T and Verizon execs. Perhaps it may even force them to offer decent wireless data services…or not.
