Update: Sprint Planning New Low-Cost Strategy

Aug.18.14 | About: Sprint Corporation (S)


Sprint is planning to offer low price plans and lower cost smartphones while featuring larger data allotments.

The move seems to me like a Hail Mary pass, designed to help the struggling company retain subscribers and compete against larger rivals.

I predicted that Sprint would have to do something to retain subscribers or risk being acquired by a larger company, but I thought the company would acquire smaller carriers.

Trying to compete on cost against larger companies is a risky move. It could leave Sprint with smaller margins, less profit, and more vulnerable than ever to takeover.

Sprint (NYSE:S) is planning to debut new price plans next week. The updated offerings could feature cheaper prices, larger data allotments, or both. In addition, Sprint's majority shareholder Softbank is partnering with Sharp to offer low-cost smartphones.

It appears Sprint is pursuing a low cost strategy to try to keep its rapidly shrinking consumer base - but competing on cost is a risky strategy, resembling a "Hail Mary" in my opinion, and it could leave Sprint more vulnerable than ever to an acquisition. Sprint had been in talks to acquire rival T-Mobile (NASDAQ:TMUS) but a new suitor, French telecom Iliad, entered the race and Sprint backed out.

That was a few weeks ago. I hypothesized then (read the article here) that Sprint could be left vulnerable to an acquisition, explaining that Sprint "is losing subscribers and it is showing on the company's bottom line. In order to remain competitive, Sprint will either have to buy up smaller companies and assimilate their subscribers to build market share or risk being bought by a larger company like Dish (NASDAQ:DISH)." If Sprint offers lower priced service and lower end smartphones while boosting data, the company could retain more subscribers but more likely the company will lower its margins enough that its ability to generate profits will suffer, making an acquisition even more likely.

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