Is Sprint's new half-off deal a desperation move?

The offer could be a boost for consumers but a big risk for Sprint, which had shaky revenues in the last quarter

Sprint donned its boxing gloves with an extravagant offer to cut monthly wireless rate plans in half for new customers who switch to Sprint from either Verizon Wireless or AT&T.

The new "Cut Your Bill in Half" offer, which starts Friday, notably doesn't apply to T-Mobile customers. Sprint is clearly positioning itself to take back the "top value in wireless" crown from T-Mobile, which has dominated headlines for more than a year with its new and unusual pricing and contract plans.

Whether Sprint can afford to attract new customers by cutting costs so drastically, and at the risk of imperiling its already shaky revenues and profits, remains to be seen.

sprint cut bill in half Sprint

New customers, meanwhile, may not find Sprint's network as reliable as they'd like and could regret switching carriers. Also, new customers would have to surrender their old phones on Verizon or AT&T for zero cash on trade-in and must purchase or lease a new one from Sprint. Those conditions could be enough to make prospective customers balk.

"Sprint's 'cut your wireless bill in half event' smacks of a desperation move," said Jack Gold, an analyst at J. Gold Associates. "Sprint is assuring a very low margin for those new customers they sign at half off ... But this is also a sign that the new management at Sprint will not sit idly by while other carriers steal away their subscribers. They have their boxing gloves on and will use them whenever they have to."

Roger Entner, an analyst at Recon Analytics, said Sprint CEO Marcelo Claure is "under pressure to do something about losing subscribers and I doubt the last value offers they made worked as much as they hoped for."

Sprint's fast 4G LTE network is rolling out in cities across the country, Entner added, "but the question is whether it's getting fast enough for [new customers] to stay."

There have been reports of spotty Sprint network coverage in cities across the country. Entner blamed the problems on the method Sprint used to provision LTE in the last 18 months -- by "ripping old things out and without getting network activation permits fast enough. Holes in wireless coverage have appeared even where there weren't holes before."

Hopefully, Sprint's network will be "much better in six months," Entner added, as upgrades catch up with coverage needs.

How 'Cut Your Bill in Half' works

Sprint's half-off plan allows new customers switching from Verizon or AT&T to get unlimited talk and text in the U.S. while on Sprint's network. Sprint also will match the customer's data allowance with the previous carrier but at half the cost, as indicated on a monthly bill.

Sprint posted details online for how new customers can take advantage of the half-rate plan. The half-off discount applies only to the customer's base monthly service and does not include taxes and fees.

As an example, a Verizon customer paying $140 a month for four lines plus 10GB of data can get four lines (with the same phone numbers) plus 10 GB of data on Sprint for $70 a month.

For a limited time, Sprint will also waive the activation fee of $36 per line and will buy out a customer's contract for up to $350 per line.

Verizon and AT&T customers must provide a copy of their current bill, which they can upload to the Sprint website starting Friday, or provide a copy of that latest bill at a Sprint store.

Switching customers also must turn in all the phones they use on either Verizon or AT&T "in good working order." In exchange, they will receive new Sprint phones, although Sprint said it can't guarantee all features of the new replacement phones will be available. There's also no trade-in value for the old phones.

The new Sprint phones can be leased, paid for under installment or purchased at full retail price. Only one phone on a Verizon or AT&T account must be presented at set-up, but all other phones must be turned in by mail within 30 days or a $200 charge per line will be applied.

While halving the monthly service costs sounds attractive, some of the conditions may be troubling to consumers. "Whether the 'half off' plan translates into a lot of net additional customers is questionable once those customers get a load of all the terms and conditions — gotta buy a phone from Sprint, no trade-in value for their old phone, gotta move all the lines from a family plan to qualify," said Bill Menezes, an analyst at Gartner.

Desperation or good business?

When asked whether Sprint intended the new half-off plan as a direct assault on T-Mobile, a Sprint spokesman chose not to even mention T-Mobile, although he discussed the concept of being dubbed a "value carrier."

"Most value offers drive [customer] interest; Sprint's value offers drive commitment," said the spokesman, Mark Elliott. "With a ramped-up rollout of value offers, Sprint is setting the bar for best value carrier in wireless. 'Cut Your Bill in Half' takes the bar up another notch."

This latest Sprint value plan may have come about because of a lack of interest in earlier value plans, such as the Family Share Pack promotion where families can share 20 GB of data across up to 10 lines for $100/month through Dec. 31, 2015. That offer was launched in mid-August shortly after Claure took over as CEO.

While Sprint wouldn't say how successful Family Share Pack and other individual plans have been, it did announce a drop in subscriber losses in early November, with 55 million wireless connections at the end of the third quarter. While that was enough for Sprint to remain the nation's third-largest carrier ahead of T-Mobile, it accompanied news of 2,000 more worker layoffs, on top of 5,000 job cuts earlier in the year, bringing the total number of Sprint employees to 30,000.

Entner said the evidence that the Family Share Pack "didn't seem to work" is the announcement of the new "Cut Your Bill in Half" plan. "It's extremely difficult to make money on half-off in wireless," Entner said. "Claure needs to show results, but half-off is one of those things where, you know, you get what you pay for.

"By charging half off, Sprint is implicitly saying that AT&T and Verizon are worth twice as much," Entner said.

Even so, Menezes said, a half-off deal from Sprint "goes after exactly what Claure has identified as big issues: create a simple, compelling value proposition and get consumers back into Sprint stores. This deal is designed to get customers to ask questions, interact with a Sprint rep and give them a shot at undercutting AT&T and Verizon. It's a short and sweet message and designed to make the person who's already out shopping more inclined to hit the Sprint store to find out if they can cut their bill in half."

Half-off customers can try network for 2 weeks

Sprint offers a 14-day return and cancellation policy, so Verizon and AT&T customers who are enticed by the half-off deal might want to test the Sprint network during that period. New customers can do so by seeing how easy a voice or data connection can be made and kept while at work, at home and while commuting.

Sprint's network has undergone persistent service quality problems during its LTE nationwide buildout, the analysts noted. Once customers sign up, Sprint has to keep its new customers happy, "which means new subscribers have to like the Sprint service, which has been lacking of late," Gold said.

Entner said Sprint has been "working through" its network problems, but questioned whether the improvements are coming fast enough. "One thing that concerns me is that they are not doubling down on building out carrier aggregation for LTE Advanced," to provide even faster service.

Network issues aside, Entner said that a half-off deal can attract new customers, even if it doesn't generate revenues and profits for Sprint.

"Consumer advocates dream about this kind of half-off deal, but everybody else with a long view realizes this can only end badly for Sprint," Entner said. "Either the offer doesn't last long or will end badly, but Sprint still has to do something to get people to join them again and be willing to take less profit or actual losses to get people to join them."

Copyright © 2014 IDG Communications, Inc.

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