Author(s): Raghu Gopal
Through a low-key marketing campaign, US carrier Sprint is making an almost implausible offer in a bid to port in new subscribers: free, unlimited service for a year. This includes voice, text and 4G data. The deal is available until 30 June 2017 through its Web site only. Potential customers must transfer their phone number from a competing carrier and bring in a fully-owned unlocked device. Through the promotion, Sprint claims a single subscriber can save $960 during the next year and a family of four can save $2,160.
The fact that Sprint is making its offer available online only shows that it has a goal of bringing down its customer acquisition costs — there's no commission to pay to a salesperson and no device subsidy. Subsequently, although the deal appears unreasonable, it should be noted that it can take more than a year for a customer to become profitable to a carrier when acquired through traditional means.
This is an extremely keen way to bring in net additions and potentially increase churn for rivals. It's also an indication that Sprint is having difficulty maintaining momentum for its post-paid business, which it enjoyed during 2016, gaining almost 1 million post-paid phone additions. The carrier has had an impressive run, but it's still far behind Verizon, AT&T and T-Mobile. As a fourth-place carrier, Sprint has little choice but to intensify competition with highly attractive deals in parallel with network investment.
The concept of free services isn't unprecedented. In India, Reliance Jio introduced its 4G service in the third quarter of 2016 by giving it away. It was a fantastically successful programme. Reliance Jio gained more than 100 million accounts after only six months of its launch, taking share from incumbent operators such as Vodafone India and Bharti Airtel.
Sprint will certainly win subscribers, but it's unlikely to follow a similar path as Jio. Sprint operates in a very mature market where post-paid churn rates are near historic lows. Post-paid phone churn for AT&T and Verizon is about 0.9 percent per month. Sprint's addressable market will only be customers who have fully paid off their smartphones and, of course, the handsets must be compatible with its network.
Sprint executives recently publicly stated that there was too much competition in the US mobile market, and it seems that the carrier is now fuelling this situation. Rivals are likely to counter the move by offering early upgrades, but overall, the response could be muted. Sprint has already been chopping prices, promising a reduction of 50 percent on competitors' service charges.
The offer is another sign that Sprint is in a difficult position, falling further behind the market's number-three carrier, T-Mobile. It needs to shake things up to move ahead. Although it appears that the promotion will lose Sprint money per subscriber with little chance of making up for it in volume, the cut in customer acquisition costs actually minimizes the gamble. It's a necessary evil, but one that's likely to fail to address its market share and growth problems. A possible long-term solution remains a merger or acquisition of Sprint, and T-Mobile could be the prime candidate for this.