Sprint PCS: No Sale

For the record, Sprint PCS is not for sale.

Let's repeat that. Sprint PCS is NOT for sale.

Sure, parent company Sprint created a tracking stock for its prized wireless property. And sure, Sprint PCS has emerged as one of the few bright spots at Sprint, following that company's long-pending and ultimately doomed plan to merge with WorldCom.

But Sprint PCS is not for sale.

Still, it's hard to blame industry watchers for expecting something to happen. Sprint's bigger competitors, AT&T and WorldCom, both have decided to start breaking themselves apart because their initial plans to conquer the service provider industry through sheer bulk have proved to be failures. Yet Sprint Chairman William Esrey continues to say Sprint's future lies in integrating voice, data and wireless services for its business and residential customers.

Identity Crisis

So why the questions about Sprint PCS? One of the problems Sprint faces is a lack of clarity in its corporate structure, which muddles its identity in the marketplace.

"We are very much one company," says Sprint PCS spokesman Larry McDonnell. The problem is that Sprint PCS is operated separately from Sprint and has a tracking stock of its own. Those two factors lead many financial analysts to treat Sprint PCS as a distinct entity, says Ben Abramowitz of Jefferies & Co. That treatment leads to speculation that what is nominally separate can easily become officially separate.

Certainly PCS represents one of the strongest pieces of the Sprint corporate arsenal and is the unit with the greatest growth potential. Sprint PCS reported nearly 9.2 million subscribers at the end of last year, for an annual growth rate of 67%. Merrill Lynch estimates that Sprint PCS and its affiliates ended 2000 with a 14% market share.

Despite all that growth, Sprint PCS is further from the top in terms of customer base than it was a year ago. That's because the merger of Bell Atlantic Mobile and GTE Wireless and the joint venture between BellSouth Wireless and SBC Wireless created two new wireless behemoths, Verizon Wireless and Cingular. Verizon Wireless ended last year almost three times the size of Sprint PCS in terms of customer count.

Other metrics for Sprint PCS also point to some troubling signs. Customer churn continues to run higher than the industry average. Sprint PCS's monthly churn rate at the end of last year was 3.1%, which was even higher than the 2.9% it registered at the end of 1999. Of the other top six U.S. wireless operators, only VoiceStream had a churn rate over 3%.

The churn issue is troubling, considering Sprint PCS has touted its Wireless Web initiative as a way to build a better relationship with its subscribers. Sprint PCS claimed about 820,000 Wireless Web customers at the end of 2000. The operating unit is making a big effort to develop applications for Wireless Web, recently inking agreements with Palm and Juno to help provide distribution and content.

Interest in Wireless Web may have helped Sprint PCS boost its per-user monthly revenues by 8.7% at the end of last year, to $59. That puts Sprint PCS roughly in the middle of the pack in terms of revenues per subscriber.

Does all this mean Sprint PCS is an attractive takeover target? Probably. Does it mean Sprint would consider setting its wireless operation free to cash in on its promise? Absolutely not.

Probably.

Copyright © 2004 Ziff Davis Media Inc. All Rights Reserved. Originally appearing in The Net Economy.