It's no secret Sprint's (NYSE:S) had some network issues in the past. But the company made some big changes to its network in 2014, and the company's new CEO, Marcelo Claure, wants Sprint customers to consider major network issues as old news.
"The rip and replace was a traumatic experience for Sprint and Sprint customers." That's what Claure said a few months ago about the company's upgrade from 3G to 4G LTE connections over past year. While much needed, the massive upgrade helped push churn rates -- the rate at which customers leave the company -- up to an industry-high of 2.18% in the third quarter of this year. Put another way, the move(at least in part) convinced 500,000 Sprint phone subscribers to dump the carrier in the calendar third quarter.
All the network problems earned Sprint the lowest overall performance score by RootMetrics in the first half of 2014, as T-Mobile passed the worst network torch to Sprint.
But those days may be over.
A better Sprint
The network changes have already taken affect, and now 254 million Sprint customers are on the faster 4G LTE network. Sprint's not done though. The company has a massive amount of 2.5 GHz spectrum it's using to help create its tri-band Spark network. Basically, Sprint wants to deliver some of the fastest download speeds available in the U.S., and it's rolling them out to its most congested network areas right now.
"Because they [Sprint] have so much spectrum, they have the ability to offer very, very high bit rates," Mike Murphy, Nokia Networks' head of technology for North America, recently told FierceWireless Tech. Spark's top download speeds go as high as 60 Mbps right now, but could easily go higher than 100 Mbps in the near future. For comparison, Verizon says its average LTE download speeds are between five Mbps-12 Mbps. By the end of this year, Sprint will have added a total of 100 million points-of-presence, or POPs, not even close to the entire country, but still a huge improvement.
Why this matters
Claure said the top two problems when he took over as CEO earlier this year were network issues and pricing confusion. To address the pricing problem, the company just started a new program that offers to cut phone bills in half for customers who switch from AT&T or Verizon to Sprint.
Now that some of the pricing strategy has changed and customers are on the new 4G LTE network, Sprint's hoping its customer prospects begin to change. And a strong network is one of the most important aspects of lowering customer churn rates. Right now Verizon has the strongest network and enjoys some of lowest churn rates and highest average revenue per user, or ARPU, in the industry. In short, with a better network, customers will stick around longer and spend more money with the carrier.
More work to be done
If there's one hitch in Sprint's network plans, it's that the upgrade to 4G and the transition to the Spark network is costing tons of money. "The Network Vision and Spark upgrade plans are critical to reviving Sprint's competitive position, but come at a high cost and will take time to implement," Morningstar analyst Michael Hodel wrote in an investor note recently.
Sprint had previously expected to spend $8 billion in capital expenditures through 2014, but lowered that to $6 billion. The problem is that Sprint can't spend all of its money on building out a faster network while it attempts to offer some of the most competitive pricing in the industry at the same time.
That many be why Sprint's targeting its 2.5 GHz rollout right now to congested parts of its network and a handful of cities. And while the company says it's committed to a nationwide rollout of 2.5 GHz, it may lose more customers in the meantime. So while Sprint's network issues are much improved, a slower rollout of the tri-band network could hurt any network competitive advantage Sprint's trying to build -- and that could hurt future customer growth.
Chris Neiger 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.