Recently, Sprint (S) announced it had won a contract with the Western States Contracting Alliance (WSCA) to become one of several providers of telecom services covering 15 states including Alaska, Hawaii, California, Minnesota, and South Dakota. The alliance, made up of mostly state and local government agencies such as emergency services, healthcare, and public education along with several non-profit organizations, provides telecom services these entities might not have been able to afford if purchasing on their own through cooperative financing and purchasing.
Similar to cooperative farming, cooperative financing and purchasing requires members to pool their financial resources to buy goods and services. In this case, WSCA members each contributed a certain amount to offer contracts to Sprint and other telecom providers. This not only lowers the cost of service for individual members, but also allows members to purchase new or enhanced products and services that everyone can use.
The contract, which runs through 2016, will bring in about $2 billion for Sprint. Members of the WSCA will have access to Sprint's wireless services, data plans, devices, and business solution products.
Landing a contract like this one is a big deal and one Sprint should be very proud of. Not only is the contract worth a lot of money, it also allows Sprint to build its brand throughout the region. With a variety of government agencies and non-profit organizations relying on Sprint products and services to effectively manage their enterprises, the word-of-mouth advertising alone from customers is worth it for the company - as long as the services provided remain consistent.
Unfortunately, dropped cell phone calls could pose a problem for the company as most telecom companies experience technical difficulties from time to time. Taking on the responsibility of making sure emergency service agencies have working cell phones, wireless capabilities, and other products and services is a gamble- as failure to provide the highest level of service could prevent emergency service personnel from saving lives, property, and other valuable assets.
In 2011, for example, the FCC asked Verizon (VZ), to investigate why 10,000 911 emergency calls were dropped during a snowstorm in Maryland to ensure future problems didn't occur. This severely challenged Verizon's reputation. Outages happen, phone lines and cell towers go down, but it's the telecom company that ends up taking the blame.
However, from an investment standpoint, investors should feel good about Sprint right now. Expanding further into different territories can only mean good things for those who invest in the company. Building a solid reputation for providing quality telecom services to the public sector is something Sprint can use to leverage bigger and better deals in the future.
The news of this one contract may not greatly affect how investors feel about the stock, as Sprint offers a wide variety of products and services to both commercial, residential, and government customers. Earning more business is just icing on the cake. I think investors should maintain their stake and continue to invest in the company for two reasons. First, it's always good to see a company continue to find profitable business opportunities that also help it build a brand - that's just smart marketing. If Sprint can provide high quality service throughout the term of the contract, it may be asked to renew or it may be asked to bid on similar contracts from neighboring alliances. Fulfilling one large contract like this one could open many doors in the future for Sprint.
Second, $2 billion over the next four years is a nice income, even for large companies in this economy. That alone should give investors peace of mind when it comes to investing in Sprint. The specific payout amounts or dates included in the contract have not been made public, so no one knows if the company was paid up front or if it will receive payment through the contract term. Investors should review quarterly earnings statements and other documents to get a better idea of when payouts will occur.
In addition to Sprint, several other telecom companies provide wireless and cell phone services to emergency personnel and other government agencies. AT&T (T) created an entire department dedicated to emergency situations and preparedness. In addition to allowing agencies to use remote servers to send and receive information via email or text message in the event local servers are disabled, the company has also implemented cloud technology that allows multiple agencies to share information concerning an emergency event on shared Internet space.
CenturyLink (CTL) also provides a host of services for emergency personnel including enhanced call routing and database services. Frontier Communications (FTR) provides services for emergency personnel including high-speed Internet, wireless Internet, E911 emergency systems to take and record emergency phone calls.
Other telecom companies provide telecom services to government agencies, in particular, to emergency services agencies. Sprint, much like its competition, must prove it is worthy of the challenges it will face. This means reducing dropped calls, providing state-of-the-art technology, and maintaining contact with government agencies to ensure products and services work at all times.
Investing in the telecom market has its risks just like any other market. But what makes telecom so special is the potential to have a real impact on the lives of people. Thanks to advances in technology, most people have a cell phone, rely on wireless Internet, and use other services provided by these companies on a daily basis. Without investors, these companies would not have the financial resources to keep expanding. And even though maintaining products and services for emergency personnel is not without risk, this type of risk for the most part helps to save lives. And with its large portfolio of products and services, Sprint and its investors will survive even if a massive amount of emergency calls are dropped - Verizon did.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
