There's a lesson to be learned from Sprint Nextel's (NYSE: S) stumbles in recent years: In the world of tech and telecom, the future comes at you pretty fast. A young, booming industry with many winners can quickly become a consolidating market dominated by a few companies. The losers, meanwhile, are forced to either look for a buyer, or watch as their market share is gradually crushed.
To be fair, Sprint remains a reasonably big player in wireless. It still claimed 48.3 million wireless subscribers at the end of the third quarter, and rang up revenue of more than $8 billion. But all the same, Sprint is getting squeezed severely by bigger competitors. While AT&T (NYSE: T) added about 2 million wireless subscribers last quarter, and Verizon (NYSE: VZ) about 1.2 million, Sprint lost 545,000 subscribers.
This is just the latest in a string of quarterly subscriber losses that's now a multiyear trend. With Verizon and AT&T able to claim larger networks, higher revenues, and more lucrative business customers, Sprint was bound to be in a tough spot as the wireless market matured. But the company's ill-conceived acquisition of Nextel in 2005 has made a bad situation worse. Migrating subscribers from Nextel's obsolete iDEN wireless network to Sprint's EVDO 3G network was bound to be painful, even with good execution. With shaky execution, it has led to a huge and ongoing exodus of Nextel users to Verizon and AT&T.
Furthermore, Verizon and AT&T have leveraged their size and clout to gain a clear edge over Sprint in landing exclusive deals for marquee handsets. Whether it's AT&T landing Apple's (Nasdaq: AAPL) iPhone or Verizon snaring Research In Motion's BlackBerry Storm, it's easy to tell which carriers are the preferred partners of the handset giants. Sprint, to its credit, did strike an exclusive deal for the Palm (Nasdaq: PALM) Pre, but I suspect this had something to do with Palm's similar also-ran status in the smartphone space, and the realization that Sprint would lavish more attention on the Pre than the big boys would.
Sprint is doing what it can to halt its bleeding, but with limited results. The company has tried to become a cost leader, only to find that T-Mobile also knows how to play this game well. Sprint has also become more aggressive in subsidizing its smartphones, only to find that Verizon and AT&T are willing to do the same. The company is now hoping that its pending rollout of 4G WiMAX services in conjunction with Clearwire (Nasdaq: CLWR) will be a saving grace. But with AT&T and Verizon set to use the LTE 4G standard supported by most of the world's carriers, they should eventually have a more appealing selection of 4G phones.
Meanwhile, Sprint has tried to stem its free cash flow declines by aggressively slashing capital spending. While the strategy has led to increasing cash flow, it certainly isn't doing anything to keep Verizon from grabbing subscribers with its superior coverage. And with more than $15.7 billion in net debt and a declining wireline business to also take care of, the company has no choice but to remain conservative in its investment plans.
At this point, Sprint shareholders can only hope that Deutsche Telekom (NYSE: DT), the parent of T-Mobile, is actually interested in buying the company. Of course, migrating Sprint's EV-DO subscribers to T-Mobile's WCDMA 3G network would be quite the challenge. And seeing all of the damage that Nextel and its incompatible network has done to Sprint, I couldn't blame it for having second thoughts.
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