Sprint Nextel Corporation
(NYSE: S) shares dropped over 25 percent last week after the company
announced major layoffs of 4,000 workers and the closing of
approximately 125 stores in order to cut costs by $700 to $800 million
per year. The telecom giant deemed these measures necessary in order to
offset the loss of approximately 885,000 subscribers. Now, there is
speculation that the company might be on the verge of a price war
designed to win back some of its customers from rivals.
Sprint has already taken several steps towards repositioning itself
for profitability. New chief executive Dan Hesse has already begun
selecting a new management team and put a freeze on the company’s
cash-drain WiMax initiative. The telecom giant is also reportedly
considering a speed-up of the network migration of Nextel’s iDen users
to CDMA in order to pave the way for a potential sale of the iDen
Network itself. And finally, Sprint is also reportedly considering an
overhaul of its pricing plans in an effort to win back customers that
it had lost so quickly to rivals.
The cellular phone industry is a unique one in that it has never
experienced price cutting in the past. Traditionally, companies have
resorted to increasing minutes and features while keeping the price
point extremely fixed. Now that more than 2/3 of all US citizens own a
cell phone, competition has become a bit more stiff and price-cutting
may be the only way left to win back customers. There is even some
speculation that the company could adopt a fixed-rate unlimited-usage
program similar to that of Leap Wireless or MetroPCS – a move that
would surely upset other large telco players.
Sprint’s botched merger with Nextel has led to a mass exodus of its users to both AT&T (NYSE: T) and Verizon Wireless
(NYSE: VZ), which have both shown substantial increases in subscribers
over the past year and are expected to show the same later this month.
Any price cutting could be as damaging to the cellular industry as it
was to the movie rental business – but it may be the only option
remaining…
Related Companies
Verizon Communications, Inc. (VZ)
AT&T Inc. (T)