T-Mobile (NASDAQ:TMUS) CEO John Legere has been aggressively taunting the other major players in the mobile phone industry, which has led to subscriber gains for his company. Sprint's (NYSE:S) first-quarter results show those new customers may have come at Sprint's expense.
Sprint has nearly 54 million but reported a net loss of 231,000 "Sprint platform postpaid customers (people with contracts) during the quarter largely due to expected elevated churn levels related to service disruption associated with the company's ongoing network overhaul," the company explained in a press release. Sprint also lost 364,000 prepaid customers, which it attributed to "changes in the Lifeline program recertification process that affected the Assurance Wireless subscriber base." Sprint did add 212,000 wholesale and affiliate customers during the quarter but was down nearly 400,000 customers.
It's impossible to tell whether those losses were a direct result of T-Mobile efforts, as AT&T (NYSE:T) also gained subscribers while Verizon lost as well. Whether people defected from Sprint to T-Mobile or not, Legere crowed about Sprint's numbers on Twitter.
"Sounds like a lot of people took my advice to #SprintLikeHell," he wrote on the social media site.
That's clearly a dig at the Sprint results and more of the "look at me, I'm the only one who knows anything" attitude that has become Legere's style. Poking at his competitors has put Legere and T-Mobile into the conversation and essentially made the company, which is essentially tied with Sprint for third place, feel like a bigger player than it is. Still poking giants does not always end well even if fairy tales imply otherwise.
The news is not all bad for Sprint
Legere may be excited by Sprint's net drop in subscribers, but the news was not all bad for the beleaguered mobile phone carrier. Sprint reported in its conference call discussing earning that its new "Framily" plan was "the company's fastest growing rate plan on record," according to CEO Dan Hesse. The new plan has "nearly 3 million customers," according to a Sprint press release.
Though it has a stupid-sounding name (which the company acknowledges in ads touting the service), Framily is the company's new take on a friends and family plan where the discount increases with each additional member who joins. The service is a potential answer to the aggressive pricing being offered by AT&T and T-Mobile.
"Framily has a lot of legs," Hesse said during the call, CNET reported. "Today will just be beginning of what you'll be seeing moving forward in terms of leveraging it as a marketing and innovation platform."
Hesse might be overly optimistic about Framily. While the service offers good deals, there might be a limit to how many people want to rope their friends and family into joint phone plans just to save a few dollars (though billing is separate).
A personal experience
If my personal experience is typical, Sprint is aggressively courting existing customers to switch to Framily.
Prompted by lower prices and the option of switching to a top-of-the-line Nokia Lumia Windows 8 phone (which Sprint does not offer) from T-Mobile, I called Sprint to discuss my bill to see if the company could lower it from the around $180 per month I pay for my phone, my wife's phone, and an Android tablet with a very limited data plan. While viewing pricing on my own I was able to see possible changes to my plan that would save money (mostly lowering minutes as we don't use our phones for calls as much as we once did). When I chatted with two separate Sprint online help personnel, the only choices mentioned were switching to Framily.
That may have been the best option for me but Framily plans (at least the ones explained to me) do not come with subsidized phone upgrades, which is something I'm unwilling to give up.
How is T-Mobile doing?
T-Mobile's strategy seems to be working. The company gained more than 4.4 million new customers in 2013, according to a company press release. In 2012 -- before the Un-carrier marketing campaign (the name it has given its new pricing plans) -- the company lost 256,000 customers. T-Mobile had 46.7 million customers at the end of 2013 and saw its churn rate drop to 1.7% in the fourth quarter of 2013 from 2.5% in the same period in 2012. Total revenues increased by 5.3% year-over-year to $26.1 billion.
The most telling piece of info that proves T-Mobile's strategy is working came when the company reported first-quarter results on May 1 and announced that it had added 2.4 million subscribers -- the largest jump in company history for a single quarter.
Do Sprint and T-Mobile need each other?
While Legere seems to enjoy Sprint's troubles, Sprint's owner Softbank and its outspoken leader Masayoshi Son (Son is CEO of Softbank and chairman of Sprint) has attempted to buy T-Mobile in the past, and there are rumors now that they may try again. A Sprint/T-Mobile merger would theoretically make the combined company stronger -- on more even footing with AT&T and Verizon -- but there are no guarantees that would happen. Sprint learned the hard way that people are loyal to their mobile phone brand and making changes can cause mass defections when it bought Nextel. That merger/mash-up never worked despite high hope when it happened. The same could occur if Sprint and T-Mobile were to join forces as the combined company would eventually have to go with one brand experience or the other.
It's possible a merger would be bigger and better able to compete, but it's likely that a merger would also send some (maybe a lot) of customers to AT&T, Verizon, or one of the niche players in the field. A merger also seems unlikely -- even if it's for the best -- because T-Mobile has denied being interested. That might make sense as it appears the company can steal Sprint customers and become a bigger player all on its own.
T-Mobile is a threat to Sprint
T-Mobile is pushing itself as an industry outsider that does things differently and that has likely hurt Sprint, which until Framily was really just a "me too" carrier. T-Mobile has lower plan prices (in general) and offers a wider range of phones than Sprint does. The company also has edge that appeals to customers looking to make a change It seems likely that the rhetoric and aggressive pricing from T-Mobile and the reactive moves from AT&T have cost Sprint subscribers.
The encouraging Framily numbers however suggest that Sprint now has a weapon to fight back, That's probably not enough and Sprint likely needs answers that don't involve bugging friends and family to join up with you, but it's a start. T-Mobile is likely hurting Sprint but the early signs of a turnaround that creates a real, four-way battle are evident.
Daniel Kline has no position in any stocks mentioned. The Motley Fool recommends Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.