A Strategic Suggestion for Sprint Nextel

What do you do if you’re #3 in a market and falling? Jack Welch of GE would have said, “Get out.” Sprint Nextel’s management doesn’t have that option at the moment, but their outlook appears dismal. According to an article by the New York Times’ Jenna Wortham, they lost 1.3MM subscribers while their larger competitors, AT&T and Verizon, gained a total of 3.5MM subscribers.

Not a winning trend.

Sprint is sorely in need of a strategic reboot, and I have a suggestion. Rosabeth Moss Kanter wrote the other day (”The Power of Old Ideas“) about an asset companies almost never use–the ideas and strategies they shelved in the past.

In Sprint’s case, that asset is wholesale. During the MVNO era earlier this decade, Sprint was (and still is) the largest supplier of wholesale wireless service. The others aren’t even close.

Wholesale employs outside partners–resellers–to brand, sell and support wireless service powered by the wholesaler’s network. In the 1980’s, long-distance wholesale from AT&T, Sprint and MCI launched dozens of vibrant telecommunications companies and greatly reduced per-minute charges for users.

But wireless wholesale never gained critical mass due to carrier neglect and strategic conflict–the direct channel was fearful that resellers would poach its own customers (see last week’s post on cannibalization). The cannibalization excuse always seemed weak to me–any wireless operator with less than 50% market share–i.e., all of them–will lose fewer customers to resellers than its competition.

Investment analysts complained that a wholesale customer had a lower ARPU than a direct customer. Which is true, but wholesale customers also have radically lower CPGA as well. Meaning the lifetime value equation for a wholesale customer isn’t bad (and may in fact be better than retail given the lower costs). Remind me to do those numbers some time.

All of the above, added to Sprint’s current growth (decline) trajectory, to me suggests that a full embrace of wholesale is a highly-differentiated strategy which would be impossible for competitors to match. And if I were the third-place operator, it’s one I would consider seriously.

Related post:
Netflix demolishes own business model

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  • John Hettish

    Good observation, John – it'll be interesting to see how they plan to reverse these sub loss trends. I have a lot of friends who work at Sprint, and there just don't seem to be any “out of the box” ideas germinating. We'll see – many of their people deserve better than this……..

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    Sprint's never had good signal where I live. Verizon however, 5 bars. Not to mention VZW has the “IN”. Hard to compete with a mob of verizon fans yaknow.