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Why Sprint can't hit the gas on cheaper plans...yet

CNET News talks to Sprint CEO Dan Hesse on why he has to be deliberate about any potential pricing moves.

Sprint CEO Dan Hesse at a company event in June. Sarah Tew/CNET

The wireless carriers are only mover faster when it comes to aggressively priced plans and promotions. Yet Sprint remains stuck in the slow lane.

Over the last several months, Verizon Wireless piled on more data and cut prices through its , AT&T launched an attractive shared family plan (which Verizon eventually matched), and T-Mobile has had a flurry of activity, including the introduction of an entry-level budget plan and offering more free data to tablet users. Earlier this week, T-Mobile began offering an even cheaper family plan that undercuts AT&T and Verizon.

As for Sprint? It has stuck by its Framily program, which was introduced back in January. The friends and family program, however, is only effective when you are able to get a large number of people on board, a fact that CEO Dan Hesse acknowledged.

"There have been changes in the industry in terms of pricing," Hesse said in an interview on Wednesday. "While our high Framily number rate plans are competitive, at other line levels we've become less competitive."

That lack of a competitive offering took its toll in the fiscal first quarter. While the company returned to a profit, its core Sprint service continued to see customer defections, with a gain in tablet users partially offsetting a larger number of phone subscriber losses. Wall Street is expecting to see new plans based on Hesse's commentary.

"While a final decision has not been made, the commentary around a refresh suggests to us that a change is coming," said Credit Suisse analyst Joseph Mastrogiovanni.

Plodding pace

Given the situation, it figures Sprint would move with urgency. But the company is taking a more deliberate approach. Hesse confirmed on a conference call with analysts today that the company was conducting trials of new plans. CNET News first reported on the trials, which include a possible shared data plan.

In a follow-up interview, Hesse told CNET News that the company hasn't decided on when it would launch a new plan, or whether it would proceed with a change.

"I'm not sure how long it will take before we come to a conclusion," he said, adding that he was waiting to see evidence that a new plan would be more effective.

T-Mobile CEO John Legere.
T-Mobile CEO John Legere has frequently bashed Sprint and its Framily plan. Lori Grunin/CNET

So why the cautious attitude? Hesse explained that the newer, cheaper rate plan would help lower prices, but also lower revenue. Any new plan would have to bring in enough new customers to justify that loss in service revenue -- a tactic that T-Mobile is employing with great success from a subscriber growth perspective.

Sprint has to contend with the progress of its network upgrade efforts. The company said it has finished the replacement of its 3G network, but it still lags behind its rivals when it comes to faster 4G LTE wireless coverage.

"If your network isn't where it's going to be, you won't have new customers coming in," Hesse said.

Because of the work-in-progress nature of the network improvements, it may not make sense for Sprint to get too aggressive with its pricing yet.

"We're balancing strength of the network versus how quickly we have to move," he said.

Put more bluntly, cutting prices could undercut revenue and earnings forecasts -- and a stock price that, despite a 30 percent drop, Moffett Nathanson analyst Craig Moffet calls "preposterously high."

Sprint shares fell more than 2 percent to $7.81 on Wednesday.

The dilemma is that while Sprint cools its heels waiting for its network upgrades, rivals such as T-Mobile are moving quickly with new promotions and programs.

Reputation problems

All of this means Wall Street will have to be patient when it comes to expectations for any real progress with the company.

Because even after Sprint fixes its network and launches an aggressive new plan, it will still have to clean up its tarnished reputation for service quality.

Hesse had to deal with this problem nearly seven years ago when he took the CEO job. He inherited a mismanaged company that let investment in network and service quality dribble out, and he set about to turn the business practice around. It took him years to reverse consumer perception about its network quality, where perception lagged reality.

Lynn La/CNET

"A lot of people don't understand the issue," Hesse said. "Perception takes a while to turn around."

For a while, Hesse became the public face of the company, appearing in ads urging consumers to give Sprint another shot. For a while, it worked. But the more recent network upgrade project, which caused widespread service disruption, has Hesse starting over from a reputation front.

The reintroduction of the 30-day guarantee, which Hesse announced last month, is one of the ways Sprint is trying to change its reputation. The announcement came just a week after T-Mobile launched its own Test Drive program.

In markets where Sprint Spark -- the company's name for its enhanced LTE service -- is available, the connection is actually pretty fast. The problem is there are only 27 markets able to get Spark.

A big priority in the marketing will be getting people to understand the improvements to the network, Hesse said. But he acknowledged that there remains a lot of work with the upgrades.

"We still have a lot to accomplish in 2015," he said. When it comes to consumer perception: "It's about gradual improvement."