…the company is revising its target capital expenditures for 2007 to approximately $8.0 billion from previous guidance of $8.5 billion. In 2007, the company expects to invest approximately $600 million in Long Distance and up to $800 million on its WiMAX initiative. Sprint Nextel expects to invest approximately $5.8 billion on Wireless capital in 2007, inclusive of network investments associated with re-banding. In addition, the company estimates that it could spend up to $800 million on intangible costs associated with re-banding which will largely be dependent upon the timing of user relocations.
It is clear that Sprint is seeing a lot churn off the iDEN network. They state this in their results and hope that their dual network phone strategy will reduce churn. Here is what I think will really happen:
Hypothesis: Sprint is going to respond to subscriber churn using a strategy that is at the core of art of war manual for the telecom business. They are going to discount rate plans or drop rate plan price points aggressively while extending contract length. This is analogous to “nights and weekends” “friends and family” or “$9.95 per month DSL for one year if you sign up now.”
What is the strategy move in a service business when differentiate of service becomes minimized? Answer: drop the cost of your service and extend the length of the contract. When I hear flat rate all inclusive rate plans, my next thought is declining revenue per subscriber. Flat rate pricing leads to lower flat rate pricing when the big boys are at war and they are using their balance sheets as weapons. Do not underestimate who gets hurt when this happens and the severity of the wounds. AT&T (NYSE:T) was so hobbled by the price wars they started with MCI for LDD that it led to them selling out to their former castoffs when they realized the cable networks they bought at inflated prices required massive infrastructure upgrades.
Full Disclosure: I do not own shares of any of the companies mentioned in this post.