Sprint’s woes increase

It hasn’t been a good month for Sprint. Things already had gotten dismal last week when it reported it shed 1.3 million subscribers despite its turn-around efforts. But the Illinois Supreme Court wasn’t feeling much sympathy. It gave Sprint 360 days to shut down its Nextel iDEN networkin small-and mid-sized markets throughout the Midwest where Sprint affiliate iPCS operates.

As you’ll recall, the iDEN network is the same network Sprint just committed to rejuvenating after the FCC gave it another 18 months to relocate its iDEN spectrum to another portion of the 800 MHz band. In truth, Sprint had little choice to reinvest in iDEN. It couldn’t just flip off a system supporting 14.6 million customers, and by virtue of the rebanding agreement, it must spend the cash necessary to retune its iDEN infrastructure. But being forced to shut down networks doesn’t really say “rejuvenation.”

The potential effects of the court’s decisions are still fuzzy, but they are probably less dire than many reports make out. It’s still unclear whether the Illinois Supreme Court’s decision will apply beyond the state of Illinois itself. And while iPCS may run networks in 81 markets covering 12.4 million people, Sprint likely doesn’t have iDEN networks running in all of them. iPCS’s does own some bigger mid-sized markets–Grand Rapids, Mich., and Fort Wayne, Ind., to name two–which will certainly create many headaches for Sprint, but iPCS also operates in vast tracts of the rural Midwest that have likely never seen an iDEN network.

Sprint said that it has been expecting the decision and has a plan in place that won’t inconvenience its customers. It hasn’t released any details of the plan yet, but I can’t imagine the company has too many options. It could try to sell off the iDEN network, though I doubt there were would be any buyers. Not only are the capital markets in the dumps, but what use would an operator have for a few isolated iDEN systems? There aren’t exactly any independent iDEN operators out there that need to expand their footprints.

Sprint could just shut the networks down and transfer customers to the CDMA network, which in those markets would be mean making them affiliate customers through iPCS. That would result in a huge loss of customers no matter how easy Sprint made the transition. Remember, these are Nextel customers that use Direct Connect push-to-talk. While Sprint offers push-to-talk over its CDMA EV-DO revision A networks, its affiliates don’t. The one key service keeping those customers Sprint-Nextel customers would go out the window. And any customers that did transfer over to iPCS would produce far less revenue for Sprint given their new affiliate status

I imagine Sprint’s plan is to cut a deal, and the fact that it hasn’t already leads me to believe that iPCS is holding out for a juicy offer. When Sprint bought Nextel in 2005, its affiliates all went litigious, suing Sprint for violating their contracts, which gave them sole right to sell Sprint-branded service in their regions. Sprint’s solution was to buy up most of those companies, including its largest iDEN affiliate Nextel Partners (which ironically is responsible for most of the overlap with iPCS). iPCS is was one of the hold-outs, and it’s taken this long for its lawsuit to work its way through appeal to the Illinois Supreme Court. Assuming Sprint doesn’t appeal the matter further, it will have to either settle with iPCS or buy the affiliate outright. Either choice can’t be very appealing considering Sprint’s current financial state.

As its last couple of quarters have shown, Sprint is shrinking. It’s not just experiencing seasonal ups and downs or suffering from an isolated misfired marketing campaign. It’s getting to the point where its operations and infrastructure are too large to support its customer base. Sprint has realized this to some extent and is taking steps to reduce its overhead by offering buyouts to employees. It’s only offering those buyouts to employees that don’t have direct contact with customers, which is key: if it cut customer service its churn rate would likely increase causing it to shrink even faster, and if it cut it sales force it would impede its ability to grow when it finally does drag itself out of its current quagmire.

Considering the predicament Sprint’s in, the iPCS decision is the last thing it needs. In the midst of a financial crisis it’s being forced to either cough up money it doesn’t have for a buyout or settlement or cut thousands of customers it can’t afford to lose.

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