Telecom Timeout

Jun 3 2009   6:13PM GMT

As the Palm Pre goes, so goes Sprint?

WPeterson William Peterson Profile: WPeterson

How closely tied are Sprint’s fortunes to the success of the Palm Pre? Look around and it would seem the two are indistinguishable. The device has been appearing (unnamed but unmistakable) at the end of all Sprint’s Now Network commercials, in a full page ad Sprint bought in the Wall Street Journal, and in almost all blog chatter about Sprint’s future. SeekingAlpha.com has a post entitled Why Sprint Needs the Palm Pre to Succeed which outlines the case succinctly:

During the quarter, Sprint lost another 1.3 million subscribers with the vast majority being the highly sought after “postpaid” variety. This brings the total number of subscribers down to 49.3 million an 8.4% decline over fiscal 2007’s year end. With Sprint’s main competitor’s AT&T (T) and Verizon (VZ) gaining subscribers through the downturn, the gap between the “have’s” and the “have not’s” continues to expand. The wireline (mostly internet) business was not much better as revenues in that area dropped 6%.

It is clear that Sprint needs something to make customers stick around, and they believe that they have that silver bullet with their exclusive deal with Palm (PALM) to provide the new Pre handset.

Many of the early reviews of the Pre have been quiet [sic] impressive and some tout it as the first real challenger to Apple’s (AAPL) iPhone. Well, for Sprint to return to profitability, they certainly hope so. One “must-have” handset can be a huge boon to a carrier, and with Sprint’s high churn rate it needs to give consumers something to get excited about.

AT&T has certainly seen quite a boost from its iPhone partnership, but there are already signs that the Sprint-Palm Pre marriage might not have the same honeymoon.

For one, there is the device itself. The first independent Palm Pre review, by Boy Genius Report, was mixed. While calling webOS’s debut “off to a great start,” the reviewers said the hardware build quality “really leaves a lot to be desired.” It’s just one review, but with stakes so high and competition from iPhone, Blackberry and even Android devices firmly entrenched, Palm and its Pre really must prove themselves to succeed.

But even if the Pre does succeed beautifully on all counts, Palm can still win while Sprint loses.  Rumors, fueled by analysts in a Bloomberg article, have surfaced that Sprint and Palm have capped stocked devices at 400,000 to purposefully run out of Pre’s on launch day in order to generate buzz. That marketing strategy is well and good, but Sprint’s exclusivity deal with Palm is very short.  Verizon announced that it will offer the Pre or a similar device within 6 months, with rumors swirling that AT&T is not far behind.

This discussion also discounts the importance of Clearwire and WiMax to Sprint’s future. While Clearwire is no longer solely Sprint’s network, it will still be one the more widely deployed 4G networks early on.

So, the question remains: Is the Palm Pre essential to Sprint’s future? If so, will it succeed? Or have they already blown it with too much early hype, as some suggest, not enough “new” to stand out, and a exclusivity deal that is absurdly short? Leave a comment or e-mail me directly at mmorisy at techtarget dot com.

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