Sprint (NYSE:S) isn't doing so hot right now. This we know.
The No. 3 carrier lost 336,000 retail postpaid subscribers last quarter, and is about to pass the No. 3 wireless carrier title to T-Mobile unless it can reverse course. In fairness, Sprint is seeing net adds in wholesale connections (840,000 last quarter), which is offsetting retail postpaid losses and allowing Sprint to maintain its total customer count. That wasn't enough to satisfy investors though, as shares lost 16% of their value after the company reported earnings.
It seems that those wholesale connections sold to mobile virtual network operators, or MVNOs, may be part of Sprint's turnaround strategy. USA Today reports that Sprint is considering a possible acquisition of one of its MVNO partners, FreedomPop.
Sprint's brand is "weak"
Talks are reportedly still underway, and could result in an acquisition, or merely an investment in the small wireless start-up. Depending on how Sprint approaches the deal, FreedomPop could be valued anywhere from $200 million to $450 million.
On the earnings call, fresh CEO Marcelo Claure acknowledged that Sprint's retail brand is suffering in a big way:
Finally, the Sprint brand was weak. We had no clear value proposition for consumers, and as measured by an outside third party, our Net Promoter score, a measure of our own customer willingness to recommend Sprint, was the lowest among the four big wireless carriers. This strength will not be reversed overnight, but it was clear to me that we need to act quickly and decisively.
Claure said that the company's top priority is to get back to positive territory with retail net additions. Acquiring FreedomPop wouldn't organically help Sprint's retail figures, even if it would technically boost subscriber numbers for Sprint-owned brands. Still, every little bit helps at this point.
FreedomPop has adopted a freemium approach to wireless service, offering basic services at no cost, but hoping to upsell customers on additional services, such as more voice minutes, faster speeds, or higher data caps. The small company also makes money selling refurbished models of previous-generation flagship smartphones at affordable prices.
Much of FreedomPop's success comes from its low entry-level price point (of free), combined with the fact that most of its sales come from online channels, allowing it to keep customer acquisition costs down. The flip side, much like in other freemium businesses, is that many customers choose not to pay up, so its average revenue per user is much lower. Half of FreedomPop subscribers pay $0 per month.
Is this a real deal?
However, GigaOm spoke with FreedomPop CEO Stephen Stokols, who said that many details of the reported deal are false. Stokols did confirm that he has received "several inquiries" about potential acquisitions, but none of these have officially come from Sprint.
Given Sprint's current standing, the rumors will continue to swirl. After all, a possible FreedomPop acquisition would make sense for Sprint considering the weakness of its own brand, so long as the price is right.
Evan Niu, CFA has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.