2-Sprint Nextel’s Stumble

 

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 the 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.

 

Update 6/18/25

The mobile telephone network carrier market is fully consolidated 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 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 and Price innovations and a great reputation for Reliability. 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. This pricing level makes T-Mobile a strong Predator competitor. Verizon and AT&T are in a Leaders Trap by allowing this to happen. 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 Hostility. See HERE for more on Reliability in tough markets.

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 performance.

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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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.