5 Things Sprint Corp.'s Management Wants You to Know

By Markets Fool.com

Continue Reading Below

Image source: Sprint

Sprint reported results for the fourth quarter of fiscal year 2014 last week. The telecommunications network missed analyst expectations, and share prices have fallen more than 7% since the report.

But the numbers rarely tell the whole story. A few of Sprint's top-level executives used a conference call with analysts to expand on the report and answer Wall Street's most burning questions. Here are five of the most important tidbits they shared, and I'll even help you figure out what the Sprint people actually meant.

The main focus right now
Let's start right at the top. Here's how Sprint CEO Marcelo Claure describes his primary task these days:

One of the biggest disappointments in the third quarter was our postpaid churn of 2.3%. As we began the year in January, we shifted gears to the next phase of our transformation, which is focused on addressing the basics to improve the operational effectiveness of the business.

Continue Reading Below

This includes improving on how we listen to our customer needs and making our network more consistent and more reliable.

That's absolutely the correct reaction to a quarter of disappointing churn numbers. Listen to customers, improve the service, try to win back the lost subscribers by earning their business.

How is that effort working out?

Putting Sprint's numbers into perspective
It looks like Sprint is onto something with this new-found focus on good customer service. Comparing Sprint's quarter to the figures presented by Verizon , AT&T , and T-Mobile , Claure didn't have to bend over backwards to find a positive spin:

I also like to look at how Sprint is performing relative to the other national carriers that we compete with to put our turnaround progress in perspective.
Looking at the top-left graph, Sprint retail net addition of 757,000 actually beat Verizon and AT&T compared to a gap of over 1.1 million a year ago, and we have closed the gap with T-Mobile to only 400,000 from 2.4 million a year ago.
On the top right, our postpaid net additions are admittedly trailing our competitors but the gap to Verizon and AT&T is closing dramatically compared to the 800,000 difference a year ago, and we have closed the gap with T-Mobile by more than 40%.

For your reference, here are the graphs Claure is talking about:

"Top left," or industry trends in retail net adds. Image source: Sprint

"Top right," or industry trends in postpaid net addsImage source: Sprint

Network quality improvements
To explain how Sprint's improving network quality is keeping subscribers in the fold, Claure turned to network performance surveys by market analysis firm RootMetrics:

The gap between the highest and lowest carrier scores has narrowed dramatically over time to where all carriers are in much tighter band indicating the difference among carriers is less discernible to consumers.
This is particularly amazing to me given the amount of money the other carriers spend trying to convince customers that their networks are head and shoulders above the rest.
I watch the acts of my competitors, and I find it amusing that T-Mobile claims the fastest network, that AT&T claims the strongest LTE signal or that Verizon claims the most reliable network making you think they have twice the coverage. This just further clouds the consumer's perception of network experiences.
The Root Metric studies basically show that in some markets we're number one, in other markets we're number two, in other markets we're number three -- and that's a significant improvement from just being dead last number four, mainly in every single market.

In other words, nobody consistently leads the wireless pack in every market, despite some claims to that effect. And Sprint is happy to notch a few wins and generally improved scores at this point, because anything is better than coming up in last place everywhere.

Here's what RootScore had to say about Sprint's improving quality on a metro-market level:

Even a quick glance at the metro RootScore Award tally shows great changes for Sprint. With much better reliability than what we saw in the first half of 2014, Sprint won significantly more RootScore Awards in our call, text, and reliability measures this time around. Indeed, Sprint even pulled ahead of T-Mobile in both our call and reliability categories at the metro level. Also noteworthy, Sprint earned a first-place tie for our Overall RootScore Award in two markets (Rockford, IL and Stockton, CA).

Asset management
These network improvements are expected to cost Sprint a cool $5 billion in capital expenses this year. Management is pulling out all the stops to make sure the company can afford these crucial investments, said Sprint CFOJoe Euteneuer:

As we look ahead, we have no significant debt maturities due until December of 2016. We will continue to manage our capital structure and position ourselves to have adequate liquidity to grow the business and fund investments in the network.
Over the near term, we expect to leverage the capacity under our receivables facility and the vendor financing on the 2.5 GHz build, and expect to explore the securitization of our device leases. As always, we will continue to rely on our ability to access the market on all available forms of liquidity.

In short, Sprint is not worried about debt repayments in the short term and has access to a plethora of financing options. From revolving credit lines and special-purpose loans to potential stock offerings and dipping into big daddy SoftBank's deep pockets, Sprint reserves the right to consider all of them.

Speaking of expenses: Is the RadioShack bankruptcy buyout helping?
When RadioShack went belly up, the bankruptcy process sold most of the retail chain's assets to largest shareholder Standard General. That hedge-fund firm then turned around and agreed to let Sprint build a store-within-a-store in about 1,750 RadioShack outlets.

No money appears to have changed hands between Sprint and Standard General, but the company is hiring up to 2,600 full-time retail workers to manage the RadioShack stores. Nearly tripling your retail footprint doesn't come cheap, even if the storefronts themselves were added for a song.

So, what will the co-branded RadioShack stores do for Sprint?Marcelo Claure said:

We have set up a business case that takes into consideration the low cost of operating a RadioShack store for us. It's a model in which we pay a percent of the rent, we pay a percent of the utilities, and basically all we have to do is put between one to one-and-a-half full-time employees to be able to manage the store.
We expect some low productivity in comparison to other company-owned retail, but the cost of operating are significantly lower and different than any other stores. So if the business plan works as we have planned, RadioShack will become one of the lowest-cost of acquisition of customers and we're going to see it over time.
As we start marketing these stores, as the neighborhood knows that they can procure their Sprint phones in the former RadioShack stores, I expect to see a nice growth in our business. For purposes of modeling, it's by far the lowest cost of acquisition, but our expectations are that they will operate significantly less productively than one of our own company-owned retail stores.

To summarize, Claure doesn't expect much from these stores -- but the low cost of operating them may make it worth his while anyhow.

The best-case scenario is that Sprint adds foot traffic to RadioShack stores, which then helps the struggling retail chain bounce back and give Sprint more than just a larger retail presence. This ideal case is a virtuous circle, but it will take both marketing finesse and firm execution from both partners.

Otherwise, those 2,000 new Sprint employees will find themselves back on the street again as the company cuts loose from a failed retail experiment.

The final plot, of course, will fall somewhere in between these extremes. Sprint investors should keep a close eye on this project. It's a risky bet that could truly could be a game-changer under the right circumstances.

The article 5 Things Sprint Corp.'s Management Wants You to Know originally appeared on Fool.com.

Anders Bylund has no position in any stocks mentioned. The Motley Fool recommends Apple and Verizon Communications. The Motley Fool owns shares of Apple. 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.