NEW YORK (AdAge.com) -- Sprint Nextel lost more than 250,000 wireless customers in the second quarter and its year-to-date operating revenue was $16.35 billion, down 11% from last year. Even so, there is one bright spot for Sprint: This quarter the carrier added 938,000 new prepaid customers, which is why it wants to continue building that business with the acquisition of Virgin Mobile USA.
In buying Virgin Mobile, Sprint gets a second prepaid brand that complements the one it already owns, Boost Mobile. The $420 million deal positions Sprint to have a combined 10-million-strong prepaid customer base, allowing it to more effectively compete against, and perhaps lead, other players in the crowded but growing category. Virgin Mobile was already the largest reseller of Sprint's wireless services.
Brand marketing remains unchanged
Sprint anticipates that the deal will go through in the fourth quarter of 2009 or the first quarter of 2010. A company spokesperson said that until then, the marketing for the two brands will not change. Marketing executives for both brands declined to comment on what future marketing might look like, citing the pending deal. But Virgin CMO Bob Stohrer said that for now, Virgin will continue its "Take Advantage" campaign that started earlier in 2009. For its part, Boost will stick with its "Unwronged" ad push and its sponsorship deal with IndyCar's Danica Patrick.
The carrier plans to keep the two prepaid brands separate. Virgin's core customers are between 18 and 34 years old. Boost until recently focused on what it calls a "cutting edge" youth audience, reaching out to the 14- to 24-year-old crowd with stars such as hip-hop artist Ludacris and the slogan "Where you at?" But earlier this year the brand launched a new campaign that targeted a broader demographic.
"Although we are not abandoning our legacy," said Boost's chief marketing officer, Neil Lindsay, "we are targeting a more mature segment [of 18 to 49], with a more mainstream personality that retains a youthful edge."
Bill Ho, an analyst at Current Analysis, believes that the acquisition allows Sprint to continue to attract a broader consumer base with Boost while targeting Virgin's younger consumer.
Sprint has been an aggressive marketer for Boost. Last year, Sprint spent $33.3 million on measured media for the prepaid brand, according to TNS Media Intelligence -- the same amount it spent in the first three months of 2009. By contrast, Virgin Mobile spent only $10.3 million in 2008, and less than $1 million in the first three months of this year.
Boost works with independent 180 Los Angeles for creative, WPP's Mindshare for media planning, and Latino agency Inspire. Virgin works with a host of agencies as well: Publicis Groupe-backed Bartle Bogle Hegarty, independent Toy, New York, and Havas' MPG for media buying.
Is this a smart move foe Sprint?
Building the pre-paid base is all well and good, but some analysts wonder whether for Sprint -- the No. 3 carrier and already struggling with continued postpaid subscriber losses and a history of technical and customer-service problems -- the acquisition could become a distraction.
Prepaid is a category that's expected to grow in the coming year. In 2008, there were 5.1 million prepaid net additions, according to Gartner, which projects 9 million prepaid net additions this year. "The market segment itself is growing and doing pretty well," said Tuong Nguyen, a principal analyst at Gartner. He estimates that overall wireless has made its way to 80% of Americans, but that there is still a large segment that is "unpenetrated or underpenetrated." With the economy still dragging, prepaid can be an attractive alternative to costly and long-term wireless contracts. "In the context of the competition, it's good," Mr. Ho said. "By moving into this, Sprint is looking at new revenue opportunities, using two brands to control the landscape in the prepaid space."
But this isn't likely to be the panacea that Sprint needs. "I don't think this is the ultimate solution for all the problems they're having," Mr. Nguyen said. "I'm also concerned that they're taking on an additional task. It's just one more ball to keep juggling in the air, and they've been juggling quite a few balls as it is."