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Sprint (NYSE:S), the red-headed step-child of national carriers, has struggled to gain competitive footing against the larger AT&T (NYSE:T) and Verizon (NYSE:VZ), and also must compete with the smaller T-Mobile (OTCQX:DTEGY). Sprint has hurt itself with poor long-term decision making. The Nextel acquisition and choice of WiMax as its first 4g network are two examples of self-inflicted problems.

Sprint certainly has challenges going forward, including the build-out of a new 4g LTE network. However, the business-- at least as it appears to potential and current consumers-- has improved significantly. Sprint (maybe tied with T-Mobile) now offers the best value proposition for a new smartphone user. I got my first smartphone (a Motorola Mobility (NYSE:MMI) Photon 4g) on Sprint this fall, because a new AT&T or Verizon data plan, without being grandfathered in with an earlier, lower price, is outrageous. My plan includes 450 afternoon mobile-to-landline minutes, unlimited other minutes, and unlimited texting and data for $79.99 (including a $10 surcharge for having a 4g phone). Unlimited AT&T or Verizon plans would have approached $150, and to get a comparably-priced package, I'd have to settle on limited data or texting plans, which I'd have to constantly try to not blow through. Why get a smartphone if you can't have fun using it?

So Sprint may now be attractive for new smartphone users, but how are they going to take grandfathered-plan-enjoying customers from AT&T & Verizon?

With an exclusive iPhone (NASDAQ:AAPL).

Sprint joined the big boys club in selling the iPhone a few months ago, but the price of admission seemed to be a pricey $20b contract to buy 30m iPhones through 2014. Unless Sprint executives are brain-dead, they wouldn't be making such a deal just to sell the same thing that two other carriers sell. There must be some sort of exclusivity baked into that contract. Especially since AT&T underwhelmed the world with 4s, it seems plausible that Sprint may get some sort of early 4g iPhone (4gs?) before its competitors do. This is a common rumor that is not yet confirmed, but seems fairly likely based on the information available at this point.

That may be enough to help Sprint steal millions of customers and become a more serious threat to AT&T and Verizon. There is a significant portion of iPhone users who MUST have the latest version of the product. These people probably won't care about paying an early-termination fee and ditching plans with preferential terms because Sprint will offer them just as good of a deal. Once on Sprint, there shouldn't be a reason to leave, especially considering that customer service has improved and is now best-of-breed. Users will be satisfied with the network, too-- my Sprint phone runs 4g in New York City, but its 3g is as fast as one really needs. In fact, it regularly beats my friends' Verizon phones in tests of network speed.

To try to put a figure on the potential opportunity for Sprint, let's assume that with an exclusive iPhone, it can manage to lure 3 million customers away from AT&T and Verizon. (That is probably about 7-10% of the current iPhone user base in the U.S., and also about 10% of the iPhones that Sprint's contract stipulates it must buy). An iPhone customer would probably generate about $1,000 of revenue annually. That would mean an addition of $3 billion to Sprint's top-line, or an almost 10% bump. (While that model may be a bit ambitious on revenue per subscriber, it does not factor in things like entire families switching because daddy wanted the iPhone 5, or potential price increases, or various other factors. It's rough, but probably reasonable.)

Sprint has plenty of challenges ahead, including the major problem of how to finance network upgrades, iPhone purchases and other things simultaneously. However, for someone with an appetite for risk, now might be a great time to pick up shares. Shares traded above $5 in July and above $3 in September. Now, at $2.31, there seems to be some upside potential, even if it is just of the dead-cat-bounce variety. I unfortunately moved a bit too early and bought shares this fall, but I am looking to increase my position if the company continues to move in the right direction. If Sprint does manage to continue its turnaround, and benefits from some sort of (unconfirmed) iPhone exclusivity deal, there's a good chance that shares could march much higher over the coming years as revenue and profitability improve.

Disclosure: I am long S.

Source: How Sprint May Shock Everyone