Sprint Nextel Lowered to Neutral

Merrill Lynch has lowered its share ratings on Sprint Nextel shares from Buy to Neutral, citing mainly customer complaints about call quality and higher churn rates. During August the Merrill Lynch analysts completed their mid-quarter store checks to over 50 stores in 3 markets. They found that customer perception of Nextel voice quality continues to deteriorate, particularly within the consumer base, in rebanding and non-rebanding markets. Sprint is also most often cited as being ported from to its competitors.

Sprint is making changes, but customer perception takes time to turn. Sprint's mid-quarter tariff changes have initially created some confusion in the channels. The research found that some store employees were initially unclear on the specifics of the new plans, in particular the inclusion of mobile-to-mobile calling between the CDMA and iDEN customers for CDMA customers.

Sprint customers are also churning more often to other carriers. Merrill Lynch found that customers with better credit quality are moving to Verizon Wireless and to a lesser degree Cingular. Those with lower credit scores are moving to T-Mobile and in some markets a regional competitor (US Cellular, Alltel).

As a consequence, Merrill Lynch lowered its EPS estimate for 2007 on constrained subscriber and revenue growth. Specifically, they are lowering their estimates for Nextel postpaid and prepaid net subscriber growth, thereby translating to lower revenue growth offset in part by lower subscriber acquisition costs.

The analysts do note however that the launch of a dual-mode iDEN-CDMA handset later this year could stabalise the customer base. The company expects to launch its first dual band handset in October, with a second model due just in time for the peak Christmas retail period."

Posted to the site on 29th August 2006