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Sprint Interested in Buying FreedomPop

November 12, 2014 - Written By Cory McNutt

Nobody from Sprint or FreedomPop would comment, but sources say that a “fluid” conversation is going on concerning Sprint’s acquisition of wireless startup FreedomPop.  Sprint has been struggling of late and owner, Japan’s Softbank, means to change all of that as they are on track to lose 2 million customers this year.  Sprint’s CEO Dan Hesse stepped down earlier this year when his slow and methodical management style clashed with Softbank’s CEO Masayoshi Son more aggressive business style.  He handpicked Sprint’s new CEO Marcelo Claure, who said, “The Sprint brand was weak” and “The company was in the weakest condition it has ever seen in terms of market share and subscription losses.”

Our source explains that, “An acquisition would likely value all of FreedomPop in a range between $250 million and $450 million, while an investment would value it closer to $200 million.”  A lot of money to be sure, but a FreedomPop acquisition could boost Sprint’s revenue growth and lower its subscriber-acquisition costs at the same time.  These talks are just one of Claure’s efforts to remake the company into a viable contender, not only in the wireless community but also as a growth and investment company.  During the first nine months of 2014, Sprint lost 4-percent on its high-end users and its churn rate is the lowest in the industry for both prepaid and postpaid accounts.

Claure must juggle the subscribers on one side and the investors on the other.  When Sprint entered T-Mobile’s price war, the results were that same for both companies – an increase in revenue for the year-over-year period, in this case 9.5-percent – but it pushes the bottom line down due to less overall profits, and Sprint’s share price dropped again.  Sprint’s stock price has lost half its value this year and that is why Claure is looking into acquiring FreedomPop because he believes their next goal is to increase post-paid subscribers on their pathway back to profitability.

FreedomPop offers up many cheap plans that begin as low as $5 a month.  They started out as a wireless hotspot provider and signed up 95-percent of their users online, making their customer-acquisition costs of only $4 per user a fraction of what it costs Sprint.  They also converted 50-percent of their customers from free-to-paying customers once they tried FreedomPop’s service.  Sprint and FreedomPop have had a partnership for almost a year and purchasing them just makes good business sense…now if Sprint could just get their network working like AT&T or Verizon’s, maybe that churn rate would slow way down and they may even gain new prepaid customers.