Sprint CEO Dan Hesse Tries to Put Positive Spin on Subscriber Losses

In a speech in California after the release of Sprint’s third quarter financials Sprint CEO Dan Hesse explained mobile carrier’s net loss of 400,000 subscribers by claiming that it is moving subscribers off its Nextel network, but moving the majority of them onto Sprint’s.

SAN JOSE, Calif. — Sprint CEO Dan Hesse said here Oct. 25 that the reason the wireless carrier reported a net loss of subscribers in the third quarter is that it is moving subscribers off the soon-to-be-shutdown Nextel network, but it is successfully moving many of them to Sprint’s.

Hesse sought to provide context to news of the net loss of subscribers Sprint reported in the third quarter of 2012 in an address at the Sprint Open Solutions Conference at the San Jose Convention Center. Earlier in the day, at 5 a.m. PT, Hesse joined the conference call on which the company's results were released.

The Nextel network—which Sprint acquired, along with other Nextel assets, in a $35 billion merger of the two companies in 2005—is going to be shut down by 2014, and the spectrum will be used for other telecommunications services, Hesse explained.

The Nextel network is otherwise known as the Integrated Digital Enhanced Network (IDEN) for the technology on which it is based.

Sprint has been gradually moving Nextel customers off the IDEN each quarter, moving 1.3 million off in the third quarter to bring the subscriber base down to 3.1 million from 4.4 million in the second quarter. The Nextel subscriber base had been as high as 7 million a year ago. But in the same quarter, Hesse explained, the Sprint network subscriber base grew by 900,000, which resulted in a net subscriber loss of 400,000 at the end of the third quarter.

Hesse used sarcasm to address critics who noted that the net subscriber loss means Sprint is in trouble.

“Well, Sherlock, we have 4.4 million IDEN customers that we have to move off the network in four quarters. We have to,” he said. “That was by design.”

He added that Sprint recorded a “recapture rate” of 59 percent of Nextel subscribers in the third quarter, up from 55 percent in the second. Hesse didn’t acknowledge this, but the math says that 41 percent apparently moved to other carriers.

In a summary from the earnings report presented at the event, Hesse also failed to mention the company’s $767 million loss in the third quarter. However, the loss was offset by the news that Sprint sold 1.5 million Apple iPhones, 40 percent of them to new subscribers.

Hesse also touted the prospects for growth for Sprint from the recently announced $20.1 billion investment by Softbank, the third-largest wireless carrier in Japan, which will give it a 70 percent stake in Sprint.

He said Softbank executives told him they would not have invested in Sprint if the controversial acquisition of T-Mobile USA by AT&T in 2011 had gone through, because it would have created an anti-competitive “duopoly” in the U.S. wireless carrier market. Eventually, opposition from the U.S. Department of Justice and the Federal Communications Commission scuttled the deal.

“I think that the $20.1 billion investment by SoftBank into Sprint is a validation of the way that the Department of Justice and the FCC looked at [AT&T-T-Mobile],” Hesse said.

With the Softbank investment, Sprint can bring mobile payments technology to Sprint subscribers, which he said Softbank is ahead of Sprint on, and can share the cost of buying handsets and networking equipment in order to achieve scale.

The Open Solutions Conference drew software developers to learn about creating applications to run on devices on the Sprint network. There, some developers said that while they still build applications for Apple devices and those running the Google Android operating system, they are starting to pay more attention to writing apps on the Microsoft Windows Phone 8 platform, which will be formally unveiled Oct. 29.