Sprint CEO's Plan: Cut Prices, Slash Costs

Source: courtesy of Sprint Corp.

The surprise ending to merger discussions between Sprint Corp. (NYSE: S) and T-Mobile US Inc. (NYSE: TMUS) included a housecleaning, at least in the corner office at Sprint. Long-time CEO Dan Hesse was summarily replaced by Marcelo Claure, founder of mobile phone distributor BrightStar, and a member of Sprint’s board of directors. On an company-wide employee phone call last Thursday, Claure laid out his plan for the company.

The plan is nothing particularly unusual, but the order in which the new CEO is choosing to attack the company’s problems is a different. First, Claure promised to disclose a new and “disruptive” pricing plan in the coming week. Second, he said the company will become the country’s best network. Third, he acknowledged that staff cuts were inevitable, but the surprising thing is that he isn’t just going to hack away at the company’s employees as his first order of business.

Claure gave no hints about the pricing plan he will introduce next week, but it’s no secret that the company’s “Framily” plan has been less than a brilliant success. The company has tested a couple of different plans in Portland, Oregon, including a family plan that cost $160 a month for four smartphones, 20 GB of shareable data, and the now-obligatory unlimited text and talk. That is double the data offered by either AT&T Inc. (NYSE: T) or Verizon Communications Inc. (NYSE: VZ) for about the same price. T-Mobile’s offer of 3 GB of shareable data and four phone lines costs $140 a month.

In Chicago, Sprint offered unlimited text, talk, and data for $50 a month on an individual plan. Only T-Mobile offered anything remotely similar, and that plan cost $80 a month. The best AT&T and Verizon could manage was unlimited text and talk plus 250 MB or 300 MB of data, respectively.

But if Sprint does go to some sort of low-cost unlimited data plan, how would it pay for the network that it needs to build to meet what it hopes will be an explosion in new subscribers? Sprint’s buildout of its new network has been just short of a disaster, and the company’s absorbed plenty of punishment in social media for its customer service.

For that matter, when it comes to customer satisfaction, wireless carriers rank right down there with pay TV companies, Internet service providers, and airlines as among the worst. As a recent survey by the American Customer Service Index (ACSI) noted:

As users download more data and take greater advantage of streaming services, overloaded wireless networks are being challenged to keep up with the increase in usage. This contributes to stagnating customer satisfaction with wireless service providers …

Low pricing goes a long way toward improving customer satisfaction, but fixing an unreliable network is almost equally important. Former CEO Hesse chose to fix the network first and worry about customers second. Claure has reversed the order and expects better results. Tune in again a year from now and we’ll let you know how he’s done.

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