Can Sprint Make the iPhone Work? The Winners and Losers From Today's News

Includes: AAPL, AMT, CCI, S, T, VZ
by: Bill Maurer

Sprint (NYSE:S) has gotten the Apple (NASDAQ:AAPL) iPhone, but can they actually make this deal work? Well, if you believe what many are saying, Sprint is betting the company on the iPhone. Now it's never a good idea to bet your company on one product for the long term, as we saw with the Pet Rock. But for the short term, it's not a bad strategy if you hit your marks. Crocs (NASDAQ:CROX) after a while diversified its product line, and the company has come back strong from what looked like game over. Now it's Sprint's turn to bet it all on red, or black, or whatever your favorite color may be.

So we hear that Sprint is paying $20 billion for about 30.5 million iPhones, which works out to about $656 per phone. That is a lot, granted, but it will get $199 back right away. That's almost a third of the cost. The key is in the plans.

Now let's look at Sprint's plans. Their Everything Data plan includes unlimited data, unlimited messaging, and 450 anytime minutes for $79.99 per month (45 cents per extra minute). Their 900 minute version of that plan is $99.99 per month (40 cents per extra minute). If you want the unlimited calling feature, that will cost you $109.99 per month. And this doesn't include all the extra service charges, taxes, and fees. Of course, as Sprint says, these plans are better than their competitors, AT&T (NYSE:T) and Verizon (NYSE:VZ). A similar Verizon plan with 450 minutes and unlimited messaging costs you $59.99, $79.99 for the 900 minute plan. And this doesn't include data. More than 75MB will cost you at least $30 a month, if you want more than 2GB a month it will cost you at least $50 more a month. AT&T's prices are similar to the Verizon ones.

So Sprint has the plans to get customers in the door, but it needs to get them in. A lot of them too. If you take out the $199 price of the phone, the company needs to recover $457 just to break even. Now last quarter, Sprint's average revenue per user was $48. I assume that number will go up since the iPhone will get people to want more expensive data plans. Even at $50 a month, you're talking about 9 months to recover. If you can get everyone in for those $79.99 unlimited plans, it would only take a little more than 5.5 months to get the money back. I know that I'm not counting other costs here, but this is just a simple explanation.

Sprint was expected to lose about $600 million in the quarter that just ended, and the iPhone's benefits won't be seen for another couple of months. The stock took a beating on Monday when the initial iPhone cost number came out, and Tuesday morning shares slid as low as $2.25. But they rallied back about 20%, a huge intraday move. I think there is more short-term pain on the horizon for now, but Sprint has made an important step. The company needed to make this move, or they would be toast. I believe there is a quote in the movie "Moneyball" where Brad Pitt's character says "Adapt or die", and Sprint needed to do so.

But remember, this is a Hail Mary pass. The future of the company rests on the iPhone, and as many have pointed out, the RAZR was the popular phone a few years ago, try selling 6 million of them now. Sprint is in a good situation to capitalize off the Apple junkies out there who have to have it all. If they can make this work, it's the first step towards profitability. And maybe a good step in the long term turnaround of the company.

So how do I think this affects the competitive landscape? Here are my potential winners and losers:

Short Term Winner: Sprint. Sprint needed a lifeline, and it got it. Like the boat that's sinking in the water, Apple is the Coast Guard. I don't think Sprint could have survived long term without this deal, and for now, it will keep the company afloat. Sprint is definitely in a position to take subscribers away from both AT&T and Verizon.

Long Term Winner: Apple. For the same reasons Sprint is a short-term winner, Apple is a long term winner. Apple gets another $20 billion contract and gets a great price for its product. An additional benefit could arise from this as well. If this is the deal that turns Sprint around, the next contract for Apple could be even greater for the company because it will have Sprint at its Mercy. Once again, Apple wins. And it's all about winning, duh.

Long Term Winners: American Tower (NYSE:AMT) and Crown Castle (NYSE:CCI). As the race to improve network coverage continues, these two cellular tower companies are in great positions to reap the benefits. Sprint will obviously need to upgrade some of its network, and there are plenty of areas in this country that need more and better coverage. American Tower is the better company right now, but both should fare well going forward.

Short Term Loser: Verizon. I think Verizon will lose some customers early on, but I don't think they are in terrible shape in the long run. Like I said earlier, Sprint could easily fail here and that would put Verizon in the best position going forward.

Long Term Loser: AT&T. For a time, AT&T was the exclusive iPhone retailer, and they have been getting cannibalized left and right. I think this impacts them more than Verizon because they now face a two front war. The new challenge from Sprint, plus the legal fight over the T-Mobile deal. They might be stretched too thin currently, and that is not good news going forward.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.