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Sprint's Free Service Offer Can't Stop Subscriber Losses

Sprint (NYSE: S) is desperately fighting to win new customers from Verizon (NYSE: VZ), AT&T (NYSE: T), and T-Mobile (NASDAQ: TMUS). The fourth-place carrier's most recent attempt to bring in new customers is to offer its unlimited data plan free for a year to customers switching from its competition. That promotion was supposed to end at the end of June, but it's been extended twice now.

Even giving away phone service didn't attract enough subscribers to Sprint to offset losses in tablets and connected devices last quarter. Overall, the company lost 39,000 postpaid subscribers -- which are users who pay their bills monthly. Postpaid service revenue fell 6.5% year over year.

Sprint's ads now feature "Paul from Verizon." Image source: Sprint

Intense competition is too much for Sprint

Last quarter was the first full quarter for Verizon's unlimited data plan, and it paid off with much greater than expected postpaid subscriber additions. Verizon also posted record low postpaid phone churn rate of 0.7%.

AT&T also had a solid quarter, posting its best-ever postpaid phone churn of 0.79%. However, it did still lose 89,000 postpaid phone subscribers. Still, that loss is a slowdown from previous periods when it was losing hundreds of thousands of subscribers every quarter. Some of AT&T's success in stemming its losses may be thanks to its decision to offer substantial savings on its TV services for unlimited data plan subscribers, including free HBO for its high-end Unlimited Plus service.

T-Mobile, meanwhile, continues to eat up industry subscriber growth. The company added 786,000 postpaid phone subscribers. That number may be somewhat inflated, though, because of the way T-Mobile accounts for its new DIGITS virtual number service. Nonetheless, T-Mobile continues to take the lion's share of postpaid net adds in the industry with its aggressive pricing and promotions.

Sprint's only competitive advantage against the competition is its pricing. It has a worse network, worse brand, and no bundling economics to play to its advantage. Offering free service for a year is basically an admission of its inability to compete on those levels. Verizon's results show that consumers are willing to pay up for a top-quality network, and the price is good enough. As a result, Sprint's efforts largely fell on deaf ears.

Can Sprint turn things around?

During the company's earnings call, CEO Marcelo Claure said the company has already added 115,000 net new postpaid subscribers in July. (It's unclear if that numbers is phones or all postpaid subscribers.) He says the company is taking share from all of its competitors. More importantly, he doesn't expect AT&T and Verizon to get any more aggressive with their promotions.

Meanwhile, Sprint itself has gotten more aggressive with its free service promotion. It's actively advertising the offer on social media to draw in more users and extending the expiration date.

But the back end of the year is historically stronger for Sprint than the first half. Those results don't mean much without context. For example, last year, Sprint added 344,000 postpaid subscribers in its fiscal second quarter. Based on its results in July, it's on pace for exactly the same number of net adds this year.

While it's a good sign Sprint's growth isn't slowing like it has in the previous four quarters, the period isn't over yet. What's more, if much of that growth is stemming from its free year of service promotion, it's hard to say how good that is for Sprint's long-term results.

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Adam Levy owns shares of Verizon Communications. The Motley Fool owns shares of and recommends Verizon Communications. The Motley Fool recommends T-Mobile US. The Motley Fool has a disclosure policy.