As Nextel mass exodus begins, Sprint reels customers back in

You would think shutting down one of its major networks would lead to big subscriber losses at Sprint(s S), but that wasn’t the case. Sprint gained 283,000 net new customers in the second quarter, not a huge number, but quite impressive when you consider nearly 1 million Nextel and Boost Mobile customers canceled their service between April and June.
Sprint managed to re-sign 60 percent of those departing Nextel customers to Sprint contracts or to one of its prepaid brands. It also lured 600,000 new subscribers from other carriers with its unlimited iPhone(s aapl) plans and saw more gains from its thriving prepaid and mobile virtual network operator (MVNO) business.
Nextel, which uses iDEN technology rather than the Sprint CDMA network, has been shedding customers for years, but in the second quarter that trend accelerated when Sprint announced it would sunset the aging network in 2013 and stopped selling new iDEN phones. Sprint has already taken 9,600 iDEN sites off air, thinning its network capacity by a third while still maintaining its original coverage footprint, Sprint Network Operations and Wholesale President Steve Elfman said at the company’s earnings call Thursday.
Consequently, 688,000 Nextel and 310,000 Boost subscribers tossed their iDEN phones to curb in the quarter. CEO Dan Hesse said it is much cheaper for Sprint to convert an iDEN customer to CDMA customer than it is to acquire a new customer from a competitor. That led Sprint to focus its marketing spending in the second quarter on moving Nextel subscribers onto Sprint contracts. Of Sprint’s 442,000 new contract CDMA customers in the quarter, 431,000 were former Nextel customers. In addition, of its 451,000 new prepaid customers, 143,000 traded iDEN for CDMA. Hesse, however, warned that Sprint doesn’t expect that high rate of conversion to continue.
The iPhone was also a growth driver for Sprint. It sold 1.5 million iPhone 4 and 4S devices in the quarter, but most significantly, 40 percent of those activations were new customers to Sprint. Though AT&T(s t) and Verizon Wireless(s vz)(s vod) sold many more iPhones during the quarter, Sprint didn’t experience the same seasonal dip in sales as its competitors — it sold 1.5 million iPhones in the first quarter as well. While consumers aren’t exactly flocking to Sprint’s unlimited iPhone plans in droves, the device coupled with its liberal data pricing is proving to be a steady customer lure.
Sprint also added 388,000 wholesale and affiliate customers, mainly from its MVNO deals. Sprint has become a big destination for virtual operators attracted by its more flexible pricing policies and willingness to share all of its services, including LTE. Though Sprint only receives a fraction of the revenue from a wholesale customer as it would from a contract customer, MVNOs account for a big part of its business — of its 56.4 million total connections, 8.4 million, or 15 percent, are maintained by carrier partners.
Sprint only launched its LTE network this month so it hasn’t started reporting LTE subscribers. Sprint started selling LTE phones long before the network went live and has already seeded the market with four smartphones and a modem. The network is only up in five major metro markets and in 10 additional communities, so as of now relatively few LTE device owners have access to 4G speeds. But Sprint is moving quickly. It plans to expand its footprint to 250,000 million people by the end of 2013.
Photo courtesy of Shutterstock user Susan Law Cain