Sprint is Giving Free Customer Service Lessons

Sometimes the most educational lessons are on what not to do rather than what to do. Failure and disaster can be extraordinarily educational as long as the reason behind the failure is well understood. I study large system outages, infrastructure failures, love reading post mortems (when they actually have content), and always watch carefully how companies communicate with their customers during and right after large scale customer impacting events. I don’t do it because I enjoy failure – these things all scare me. But, in each there are lessons to be learned.

Sprint advertising from: http://unlimited.sprint.com/?pid=10 (2011/10/29).

I typically point out the best example rather than the worst but every once in a while you see a blunder so big it just can’t be ignored. Sprint is the 3rd place wireless company in an industry where backbreaking infrastructure costs strongly point towards there only being a small number of surviving companies unless services are well differentiated. All the big wireless players work hard on differentiation but it’s a challenge and, over time, the biggest revenue, supports the biggest infrastructure investment, and its gets harder and harder to be successful as a #3 player.

Sprint markets that they are better than the #1 and #2 carrier because they really have unlimited data rather than merely using the word “unlimited” in the marketing literature. They say “at Sprint you get unlimited data, no overage charges, and no slowing you down” (http://unlimited.sprint.com/?pid=10).

We live on a boat and so 4G cellular is about as close as we can get to broadband. I like to do all I can to encourage broad competition because it is good for the industry and good for customers. That is one of the reasons we are Sprint customers today. We use Sprint because they offer unlimited 4G and I really would like there to be more than 2 surviving North American wireless providers.

Unfortunately, Sprint seems less committed to my goal of keeping the #3 wireless player healthy and solvent. Looking at the Sprint primary differentiating feature, unlimited data, they plan to shut it off this month. That’s a tough decision but presumably it was made with care and there exists a plan to grow the company with some other feature or features making them a better choice than Verizon or AT&T. Just being a 3rd choice with a less well developed network and with less capital to invest into that network doesn’t feel like a good long term strategy for Sprint.

What makes Sprint’s decision notable is the way the plan was rolled out. Sprint has many customers under 2 year, unlimited data contracts. Rather than risk the negative repercussions and customer churn from communicating the change, they went the stealth route. The only notification was buried in the fine print of the October bill:

Mobile Broadband Data Allowance Change
Eff. on your next bill, Mobile Broadband Data Plan 4G usage will be combined with your current 3G monthly data allowance and no longer be unlimited. On-network data overage rate for 3G/4G is $.05/MB. Monitor combined data usage at sprint.com. Please visit sprint.com/servicechange for details.

In November, many of us are going to get charged an overage fee of $0.05/MB on what has been advertised heavily as the only “real” unlimited plan. For many customers, the only reason they have a Sprint contract is that the data plan was uncapped. Both my phone and Jennifer’s are with AT&T. The only reason we are using Sprint for connectivity from the boat WiFi system is Sprint offered unbounded data. Attempting a stealth change of the primary advertised characteristic of a service shows very little respect for customers even when compared with other telcos, an industry not generally known for customer empathy.

I agree that almost nobody is going to read the bill and I suppose some won’t notice when subsequent bills are higher. But many eventually will. And, even for those that don’t notice and are silently are getting charged more, when they do notice, they are going to be unhappy. No matter how you cut it, the experience is going to be hard on customer trust. And, at the same time they showing little respect for customers, they are releasing them all from contract at the same time. Any Sprint customer is now welcome to leave without termination charge.

Some analysts have speculated that Sprint doesn’t have the bandwidth to support their launch of iPhone. This billing structure change strongly suggests that Sprint really does have a bandwidth problem. I’ve still not yet figured out why an iPhone is more desirable at Sprint than it is at Verizon or AT&T. And I still can’t figure out why the #3 provider with the same data caps is more desirable than the big 2 but it’s not important that I understand. That’s a Sprint leadership decision.

Let’s assume that the Sprint network is in capacity trouble and they have no choice but to cap the data plans even though they are changing the very terms they advertised as their primary advantage. Even if that is necessary, I’m 100% convince the right way to do it is to support the existing contact terms for the duration of those contracts. If the company really is teetering on failure and is unable to honor the commitments they agreed to, then they need to be upfront with customers. You can’t slip in new contract terms quietly into the statement and hope nobody notices. Showing that little respect for customers is usually rewarded by high churn rates and a continuing to shrink market share. Poor approach.

I called Sprint and pointed out they were kind of missing the original contact terms. They said “there was nothing they could do” however, they would be willing to offer a $100 credit if we would agree to another 2 year contract term. Paying only $100 to get a customer signed up for another 2 years would be an incredible bargain for Sprint. Most North American carriers spend at least that on device subsidies when getting customers committed to an additional 2 year term. This would be cheap for Sprint and would get customers back under contract after this term change effectively released them. The Sprint customer service representative did correctly offer to waive early cancellation fees since they were changing the contract terms of the original contract.

Sprint customers are now all able to walk away today from the remaining months in their wireless contacts without any cost. They are all free to leave. From my perspective, it is just plain nutty for Sprint to give their entire subscription base the freedom to walk away from contracts without charge while, at the same time, treating them poorly. It’s a recipe for industry leading churn.


James Hamilton

e: jrh@mvdirona.com

w: http://www.mvdirona.com

b: http://blog.mvdirona.com / http://perspectives.mvdirona.com

9 comments on “Sprint is Giving Free Customer Service Lessons
  1. Maynard, you were suggesting that a good differentiation for mobile carriers could be better supporting international travelers through non-SIM locked phones.

    Note that SIM unlocked GSM phones work fine GSM networks (T-mobile and AT&T). AT&T will actually SIM unlock if you are travelling internationally and give them a call. Its a slight hassle/negotiation but I have done it. T-mobile may as well but I’ve not tried it.

    As you know they SIM lock because the phones are sold subsidized. If you chose to buy a phone without a bundled contract term which is the way the rest of the worlds wireless companies work, it shouldn’t be a problem to get it SIM unlocked given they will even do it on subsidized phones with negotiation.

    In most of the rest the world, wireless carriers sell phones without subsidy and a more competitive pricing ecosystem has emerged. The non-contract prices for phones in North America is high. For example, a Galaxy S II from AT&T under contract is $199.99 but unsubsidized is $250 more at $549.99.


  2. Maynard Handley says:

    "All the big wireless players work hard on differentiation but it’s a challenge and, over time, the biggest revenue, supports the biggest infrastructure investment, and its gets harder and harder to be successful as a #3 player."

    There IS an essentially free way to differentiate — be the vendor that allows users to utilize unlocked phones, so that they can travel overseas and use foreign SIMs. Sprint, however, has decided that they would rather accept the (very rare, and based on pissing off customers who now hate you) thousand dollar excess fee from unwary travelers than the constant, every-month $90 from a large pool of customers who travel, and who love you. So they’ve switched to locking the SIM in the iPhone4S (and, as far as I can tell, in similar CMDA+GSM Android phones).

    Honestly I will not weep to see Dan Hesse fired or the company go bankrupt — there’s a certain level of stupidity at which a company no longer deserves to live.

  3. Paul, that is not correct. Sprint really did extensively advertising "no caps" across the board for all devices not just handsets, I did take them up on there offer, they did go under contract without caps, they did change the terms, and they did make the change by only slipping in a paragraph into the bill and hope that nobody reads it.

    My 2 year deal with them was without caps. They put caps on without warning and the compensation offered for those that did notice is up to a $100 credit if you enter into another 2 year term. The compensation is very close to the customer acquisition fee at Sprint so its a great deal for them.

    My input is making a change like this without warning or telling customers properly (few read the small print each month in their bills) isn’t a great move. It would have been better if they just stopped selling new contracts and honored the old ones. If the network really is so close to collapse that they can’t honor the contracts they already have, more warning and better notification would have been better.


  4. Andy, I’m open to any pricing the carriers want to set. My only input into the equation is I like there to be lots of healthy carriers and lots of competition competition.

    What Sprint is getting wrong on this one is to offer a package, sell it, and then change the terms during contract by slipping a paragraph into the bill and hoping folks don’t notice.


  5. Paul says:

    I would like to point out the change does not effect cell phone users, only non-cell phone users such as those with PC data cards. The advertising is for unlimited "phone" usage.

  6. What I find odd is that, while they seem to be struggling with capacity problems, the mobile carriers don’t seem to be investing much in making usage of their networks more efficient. Instead, you’re seeing innovation from third parties, such as Google’s SPDY and Amazon’s Silk (ironically). If a carrier talks about efficient use of the network, they talk about it along the lines of "Thank goodness someone else is working on this problem for us." (See Sprint’s Dan Hesse in Fortune on the iPhone’s data efficiency.)

    That said, I’m not suggesting that carriers require their customers use a specific protocol to access their network – but I would like to see them more active in protocol development, and make things like Silk an *option* to their customers.

    On the other hand, perhaps carriers should just adopt non-punitive pay-per-usage pricing across the board. There are examples in the market where it works: I’m thinking of IaaS cloud providers for one…


  7. Hi Frank. You were asking does their contract allow them to do this? Probably it does but I’m not taking the time to wade through pages of fine print. They can change but, once they do, we’re free to walk away. Most companies living on subscription services watch the subscriber churn rates carefully. My guess is they will see the results fairly quickly.


  8. Frank Ch. Eigler says:

    James, did the original contract include clauses that allow Sprint to unilaterally change/cancel it during the term? That seems very strange.

  9. Curious says:

    Tacky way to make the change, but do Sprint’s new limits apply only to off-phone data use like WiFi? If so would carrier #3 still make sense for iPhone YouTube fans?

    Interesting that those (few?) Sprint customers who never use data off-phone may still be free to leave.

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