Sprint's best customers are hanging up

May 12, 2008: 3:24 PM ET

By Michal Lev-Ram

Churn, or the rate at which customers defect to rival carriers, is one of the most important metrics for measuring the success of a wireless carrier.

Unfortunately for Sprint (S), it has one of the industry's worst churn rates. On Monday it revealed that 1.09 million of its subscribers decided to take their business elsewhere in the first quarter as the company reported a net loss of $505 million, or 18 cents a share, compared to a loss of $211 million, or 7 cents a share, a year earlier. Revenue dropped 8% from a year ago to $9.33 billion. Excluding a number of one-time charges, such as job-cut costs and merger-related expenses, Sprint's adjusted profit slid to 4 cents a share from 19 cents a year ago.

Meanwhile, rivals Verizon (VZ), AT&T (T) and T-Mobile (DK) saw their churn rates for postpaid accounts fall during the same period, and their customer base grow. Verizon added 1.5 million wireless subscribers, and 1.3 million new customers signed up with AT&T. Even T-Mobile, the smallest of the top four U.S. carriers, added nearly a million customers the last quarter, tipping its total subscriber base to slightly over 30 million for the first time.

Many of Sprint's recently-departed subscribers also happen to be some of its best customers. That means that a large percentage of defecting Sprint users are the type of people likely to pay for higher-priced data plans, pay extra fees for text messaging and downloading ringtones or buy more expensive phones. That is a big part of the reason Sprint's average revenue per customer declined by about $2 compared to the first quarter of 2007.

"We continue to place the highest priority on reducing churn by improving the customer experience," CEO Dan Hesse said in a statement Monday.

He told analysts on a conference call Monday that he is investing to acquire new customers as well as to keep existing ones from fleeing.

Improving customer service and simplifying rate plans are two ways Sprint is trying to keep retain subscribers. Later this summer, the company will also launch an iPhone competitor it hopes will provide an incentive for customers to stay - current customers, as opposed to new subscribers, will have first dibs on a Samsung touchscreen called the Instinct.

But it will likely be some time before those changes turn around Sprint's churn rate. Hesse, however, is optimistic. On Monday he told analysts that in March, "We began to see improving trends in churn."

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About This Author
Michal Lev-Ram
Michal Lev-Ram
Writer, Fortune

Based in Silicon Valley, Michal Lev-Ram covers enterprise and mobile technologies for FORTUNE. Prior to joining FORTUNE, she wrote for CNNMoney, Fast Company, Popular Science and other business and technology publications. She was also a staff writer at Business 2.0 and holds a B.A. in journalism from San Francisco State University.

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