Verizon (VZ) kicked off the carrier earnings season by announcing it had added 1.5 million new contract subscribers — far above the expected 900,000. Next came AT&T (T), which missed consensus by adding a paltry 150,000 new contract subs, well below the expected 350,000. Combined, the two American mega-carriers added more than 1.6 million new contract subs. This was 400,000 more than expected and despite AT&T’s wobble, the lead that the AT&T-Verizon duo has over smaller challengers grew dramatically.
This is the context for Sprint’s third-quarter report. This is why Sprint’s (S) loss of 450,000 contract subscribers must sting so badly. It was just 40,000 subscribers worse than markets expected but at the same time, AT&T and Verizon did much better than anticipated.
This wasn’t any old quarter. This was the quarter when AT&T and Verizon hiked the price of their cheapest smartphone plans and effectively prevented consumers from picking cheap SMS or voice packages. Yet the premium pricing of the Big Two is not hurting them — and now we know it is not aiding Sprint one iota.
Sprint’s iPhone activation number at 1.5 million units was fine. It’s roughly half the Verizon level of 3.1 million. But now we know that the iPhone absence wasn’t the real problem for Sprint a few years ago when it started lagging behing its bigger rivals badly.
Softbank could help Sprint speed up its LTE expansion and this could be helpful, but Verizon and AT&T are also expanding their LTE maps at a rapid clip. It’s hard to see the coverage gap closing completely. Nextel bled nearly 900,000 subs during the autumn quarter and Sprint’s CDMA network could add only half of the volume of lost iDEN customers. When the Nextel network is closed down in 2013, the iDEN hemorrhage will stop. But Sprint’s CDMA operation doesn’t have the momentum necessary to even stop the market share gains of the AT&T/Verizon beast.
Softbank may simply have no other choice than to introduce radical new pricing and product concepts to try to change the U.S. market dynamics. Half measures will not do.