Boost Mobile ready to build on success of inexpensive cell phone service

KANSAS CITY — The head of Boost Mobile, Sprint Nextel Corp.'s prepaid phone subsidiary, said customer reaction to its $50 unlimited calling and texting offer this winter has gone beyond "our wildest dreams."

"We thought that we were on to something very attractive in the marketplace. What we didn't anticipate was how popular so quickly the brand would become," Matt Carter, president of the Irvine, Calif.-based operator, said in an interview this week. "We've been playing catch-up ever since we launched it."

Sprint, the nation's third-largest wireless provider, announced Monday it added 674,000 prepaid customers — subscribers who pay for service month-to-month and don't sign annual contracts.

Most of those came through Boost, which began offering the unlimited plan in February to take advantage of the growing number of consumers looking for cheaper cell phone service.

The gain helped offset a loss of 1.25 million Sprint customers who do sign annual contracts, helping the Overland Park, Kan.-based company report the lowest number of quarterly net losses in more than a year.

"We're very bullish and very pleased with what we've seen on Boost Unlimited," Sprint CEO Dan Hesse told analysts Monday.

That surge in popularity wasn't painless, however, as Boost users experienced long delays in receiving text messages in the first couple of months and vented their frustration at dealers. Carter said the problems were with the platform used to process texts on the network, not the network being unable to handle the additional call volume, and those problems have been fixed.

"Right now the system is definitely where it needs to be and will stay there going forward," he said.

He added the company is also getting a better handle on its handset inventory after some stores experienced brief shortages shortly after the $50 offer started.

Keeping those new customers happy will be key for the Boost Unlimited offer to have a long-term benefit for Sprint. Prepaid customers can switch providers relatively quickly because of the lack of contracts and their financial history sometimes makes them risky as customers.

"We think the prepaid market may be one of the best sources for future growth," Dave Novosel, an analyst for the Gimme Credit corporate bond research firm, said in a note to clients. "The question is whether or not Sprint can do it profitably, as credit quality for prepaid users is typically lower."

Sprint noted that the "churn" of Boost customers dropping service declined to 6.86 percent in the first quarter from 9.93 percent a year ago and 8.2 percent in the previous quarter. Also, the $50 per month that unlimited customers spend is well above the $31 monthly average for all prepaid customers.

Carter said the company will work to stay competitive with prepaid market leaders MetroPCS Communications Inc. and Leap Wireless International Inc., which offer service plans for about the same amount as Boost but on more limited networks.

He also said Boost will continue offering updated handsets, such as its first featuring a QWERTY keyboard later this month, and keeping costs low.

It also will continue trying to attract customers through its series of edgy television ads — including one where two pigs are seen dining on ham — and opening its own series of branded retail outlets. Boost plans to open 50 of the stores this year.

"I tell my team that we just completed the first inning of a nine-inning game," Carter said. "We've got to broaden the appeal of the brand, continue to expand our distribution and really continue to execute on a day-to-day basis."