Sprint Nextel Upgrading Customers with the Samsung Instinct Smartphone

Implications: The strong initial sales of the $130 Samsung Instinct indicate that Sprint Nextel can thwart churn with handset upgrades and that there could be a price war of smartphones and unlimited data.

Analysis:

Sprint Nextel’s sales records with the $130 Samsung Instinct smartphone could be the start of reversing seven quarters of negative postpaid adds.  The article’s research of 100 stores shows record high sales of 600 Instincts at one store, another location selling 25 units in an hour, and a store having a 20-customer waiting list.  Sprint lost 1.1 million postpaid customers for the last quarter, following a quarter of 683,000 postpaid losses and five previous quarters totaling to 1.03 million postpaid defections.  The handset upgrade becomes an effective retention tactic, particularly with a $130 price point available with rate plans as low as $70 month for 450 voice minutes and unlimited data. 

Verizon has aggressively upgraded handsets with 58% of its customer base using 3G handsets.  And Verizon’s churn for retail postpaid has been below 1% since 2006.  AT&T lags in upgrades with about 15% of the customer base on 3G handsets, and has averaged retail postpaid churn about 20 basis points higher than Verizon.  For the same seven quarters that Sprint has lost a total of about 2.5 million customers, Verizon and AT&T each have added at least one million postpaid subscribers per quarter.  The question is whether Verizon and AT&T will increase subsidies for smartphones to compete with Sprint’s Instinct price.  Will Verizon lower its iPhone-like LG Dare below $199 to continue attracting Sprint customers?  And will AT&T back off the increase of unlimited data from $20 to $30 on the Apple iPhone to compete for Sprint’s low rate plan of unlimited data and 450 voice minutes?  The high sales of the Instinct could not only improve Sprint’s second quarter results, but also start a price war of the best deal on a smartphone and unlimited data.