2-Sprint Nextel’s Stumble

 

The story in this blog illustrates several important facets of competition in difficult markets. It demonstrates how market share is gained and lost even while industry leaders think they are competing well. It shows us that in tough markets the primary reason for market share movement is failure by an incumbent supplier. It also demonstrates how a relatively small competitor can become an industry powerhouse, first, by its own innovation and, second, by its competitors’ failures.

Posted 3/10/08

Sprint Nextel appears to be in real trouble. A recent Wall Street Journal article offered a long analysis of the company and its current challenges. Sprint Nextel is illustrating the way market share is lost in most markets. In short, Sprint Nextel is losing the most profitable customers (post paid contract subscribers) to the top two carriers, AT&T and Verizon, as well as to the fourth ranked competitor, T-Mobile USA. Sprint Nextel’s losses in customers may be as much as 2% of these valuable customers in a quarter. These are the best customers, so the company’s percentage loss in revenue would be much higher than the percentage loss in number of customers.

How did this loss happen? Analysts blame the botched integration of Sprint with its acquisition, Nextel. Customers have determined that Sprint Nextel has poor customer service and low network reliability.

This brings us to the way market share shifts in most markets. Market share moves from one supplier to another most often due to failure, not to success. Some competitor, in this case Sprint Nextel, fails to provide a level of service, functionality and price that other competitors can and will supply. This is failure, which drives customers into the arms of competition. Once Sprint Nextel fails then some of its customer volume leaves it for better competitors. Note that these better competitors were not good enough to take market share away from Sprint Nextel without Sprint Nextel’s failing in the first place. If they could have, they would have created a “win” and taken the share outright. Instead, the share is moving in this market largely on the basis of Sprint’s “failure” rather than the other carriers’ “success”.

This is going to be a long turnaround for the hapless new CEO at Sprint Nextel. Once a company develops a reputation for poor reliability, it takes a long time to win it back.

You can see the damage done to Sprint Nextel in the most recent pricing wave in the industry. The other three competitors announced unlimited minute voice plans for their wireless services at about $100 per month. Sprint Nextel, of course, had to follow. But they followed with an $89 a month plan that offers unlimited voice minutes and also unlimited data minutes. Sprint is offering a price about 10% lower than their competitors for a product somewhat better, at least for some of the customers in the market. This is a typical characteristic pricing scheme for a Price Shaver. Not many Price Shavers do well over the longer term. They have to offer a lower price because customers don’t think their product is as good as the others’. This strategy leads to weak customers, low returns and long recovery periods.

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Update 6/18/25

The mobile telephone network carrier market is fully consolidated (Pattern: Consolidation — combining productive capacity under a single operating entity that was formerly managed separately, reducing overhead) today. The market’s top three competitors have a combined market share of 97% and substantial ability to control their profitability through pricing. 2025 market shares show Verizon leading the market with 36% share, an increase of 6% since 2008. T-Mobile, the smallest of the national carriers in 2008, now ranks second in the industry with a 32% market share. This is an impressive 19% market share point gain since 2008. The laggards have been AT&T at 29% in 2025, down from 32% in 2008, and Sprint Nextel, which was acquired by T-Mobile after holding a 22% market share in 2008. Here is the story of what happened from 2008 until 2025.

Verizon continued to lead the market. Most of its growth came from the mobile virtual network operator market, a private label Price Leader (Pattern: a competitor or product offering below-standard performance at a very low price, selling more than half its volume below the Standard Leader’s price) product. It operates the market’s largest network and delivers a reliable service. It maintains its premium pricing in 2025.

T-Mobile has been a massive winner in the years since 2008. It has gained and maintained its share with aggressive acquisitions, Function (Pattern: the product characteristics that affect how the customer uses it, essentially all of its features) and Price innovations and a great reputation for Reliability (Pattern: the consistency with which a company delivers on its promises). It has been an aggressive acquirer and capable manager of marginal performers. In 2020, it acquired the failing Sprint Nextel and managed to hold on to most of that company’s aggravated customers. It continued its acquisitions with the purchase of Mint Mobile, a Price Leader competitor, and a substantial portion of US Cellular’s customers. T-Mobile holds on to these acquired customers and builds on its base with Function innovations including, the industry’s largest 5G network and add on Function perks for its customers, such as free streaming subscriptions, free international roaming and five-dollar movie tickets.

T-Mobile has the most aggressive pricing in the market, charging 10 to 20% less than competitors. But price alone doesn’t explain it — T-Mobile is pairing that discount with performance ahead of the market standard, not just at it. That makes T-Mobile a Next Leader (Pattern: a competitor offering much better than standard performance at a low price to a specific customer subset, made possible by a low cost structure), not a Predator: a Predator competes on price against user benefits that are merely equal to the Standard Leader’s, and T-Mobile’s network and perk stack put it ahead, not level. Verizon and AT&T are the ones exposed. Holding prices up while a better-performing rival undercuts them is a Leader’s Trap (Pattern: when an incumbent holds a price umbrella and loses share to a discounter; the price fight itself teaches customers distrust, turning a pricing failure into a lasting Reliability failure that outlives the eventual price cut) — and a company charging more for apparently equal product reads as less reliable to customers, whether the price fight has come to a head yet or not. T-Mobile’s relentless company focus on industry leading customer service and network reliability provide it with a superb Reliability reputation. A reputation for Reliability accompanies most successful firms, especially in Hostile Markets (Pattern: an industry with low average returns, revenue growth under 5% per year, and unit growth usually under 3% per year, marked by intense price competition).

AT&T has substantially lagged the market in recent years on both Function and Price as its attention turned to other product lines. The company was slow in rolling out its 5G network. It has also aggressively raised prices on its plans. These moves are market failures that have led to customers leaving and AT&T’s poor outcome.

Sprint Nextel remained an industry basket case until its acquisition by T-Mobile in 2020. It failed principally on Reliability, and secondarily, on Function. Sprint’s integration with the acquired Nextel was implemented badly, resulting in substantial customer defections. These network breakdowns continued in the following years. Its low profitability prevented it from rolling out a significant Function, a 5G network. By the time T-Mobile acquired Sprint its market share had already fallen below 16%. In the transition from Sprint to T-Mobile, several percentage points of that 16% defected to other carriers.

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Quick Hits

Five patterns from the StrategyStreet system this story confirms.

1. A Standard Leader that covers every price point is hard to dislodge. Verizon is a Standard Leader (Pattern: the competitor or product that sets the market’s standard performance and price, selling more than half its volume at the industry’s most common price point) that has covered the market’s low end with a private-label MVNO — a Low-Extender Product (Pattern: a type of Price Leader product, introduced by Standard Leaders, where user benefits are lower than the Standard Leader product while buyer benefits are the same) against the Price Leaders — while holding its own premium branded price at the top. Don’t cede a price point to a specialist; extend a product into it instead.

2. A Leader’s Trap doesn’t wait for the price fight to start doing damage. Verizon and AT&T’s Price Umbrella (Pattern: when incumbents hold prices up, letting others discount against them and take share) gave T-Mobile both the margin to fund better products and the pricing room to sell them cheaper. That’s the mechanism, not a coincidence — the umbrella hands the challenger the money and the invitation at the same time.

3. Every failure in this story is a management decision, not an exogenous shock. Sprint’s botched Nextel integration, AT&T’s slow 5G rollout and self-inflicted price hikes, Verizon and AT&T’s shared price umbrella — none of these were imposed by the market. They were choices, made by people who could have chosen differently.

4. Reliability failures move more market share than anyone’s success does. Most of the share that moved in this industry over seventeen years moved because a competitor failed, not because a rival out-innovated it. Sprint’s losses to all three of its rivals are one of the cleanest examples of this pattern anywhere — a Weak Win (Pattern: volume gained because a customer opened bidding to new suppliers after its incumbent failed) for AT&T, Verizon, and T-Mobile alike, not a case where they had to earn it away from a healthy competitor.

5. Acquisitions work in mature and even Hostile Markets — when they buy access, not just size. T-Mobile’s runs at Sprint, Mint Mobile, and US Cellular’s customer base weren’t consolidation for its own sake. Each one bought new products, new customers, or a lower cost structure than T-Mobile had on its own. That’s the difference between an acquisition that works and one that doesn’t.

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THE SOURCES OF STRATEGYSTREET.COM: For over 30 years we observed the evolution of more than 100 industries, many hostile.  We put their facts into frameworks applicable to all industries and found patterns.  Strategystreet.com describes the inductive results of these thousands of observations and their patterns.