It took several years for Sprint Nextel (NYSE:S) to obtain the iPhone, but it finally got it to start the fourth quarter of 2011. Despite impressive rates through the first two quarters of iPhone access, many have questioned whether Sprint would be able to sell as many phones as Apple (NASDAQ:AAPL) requires under its contract with the third largest mobile phone carrier in the United States. Under the agreement, Sprint must purchase $15.5 billion worth of iPhones. Last week, though, some news came out that should help give Sprint a boost in iPhone sales.
Prepaid iPhone Service
Starting June 29, the iPhone will be sold to Sprint's Virgin Mobile USA brand's prepaid customers. Sprint acquired Virgin Mobile's U.S. operations in 2009, from billionaire Richard Branson's Virgin Group, which had already run its service on Sprint's network. The iPhone 4S will cost $649, and an iPhone 4 with 8 gigabytes memory will cost $549.
This is the second U.S. pay-as-you-go carrier deal. Leap Wireless International (LEAP), another U.S. pay-as-you-go mobile service provider, also announced plans to offer the phone on its network. Through Virgin Mobile, Sprint is pricing models slightly higher than Leap, but with lower-cost monthly options.
With plans between $30 and $50 per month, Virgin Mobile will offer considerably cheaper iPhone options than users can find through AT&T (NYSE:T), which still has the most iPhone users, or Verizon (NYSE:VZ), the second largest iPhone carrier and largest overall U.S. mobile service provider. Virgin Mobile customers also will be able to use their iPhone as a mobile hot spot for an additional $15 per month.
Comparable plans through either of the two largest competitors would cost about twice as much. Those plans generally come with a more subsidized iPhone, priced at $199. But the $350-$450 upfront iPhone cost difference between Virgin's planned offering and a subsidized two-year contract could be made up in about seven to nine months on the most expensive Virgin plan. That also means that over a two-year term, the total cost of the phone plus service could be $650 to $750 lower under that prepaid plan, and even more substantial under the lower priced plans.
Other than Virgin Mobile USA, Sprint also owns Boost Mobile, and it is not absurd to presume that a similar deal will eventually also exist through that subsidiary, as well as other competitors. Many users of both Virgin and Boost prepaid plans are adolescents, limited by their parents to such lower cost and more controllable plans.
This may help Sprint lock those customers into the Virgin Mobile brand and under the Sprint umbrella. A major issue for Sprint over the last few years has been subscriber loss, as customers discontinued relationships to move to competitors with the iPhone. Sprint had already reported that their problem with subscriber losses appeared highly mitigated by its inclusion into the iPhone family. Now, not only might Sprint stop losing customers, but it could start gaining customers from its larger competitors, as price-conscious iPhone consumers opt to discontinue higher priced and longer term relationships with a carrier and/or model of phone.
Last year, AT&T tried to buy T-Mobile USA, a subsidiary of Deutsche Telekom (OTCQX:DTEGY), for $39 billion. The U.S. Department of Justice filed suit to prevent AT&T from acquiring T-Mobile, voicing concerns that the combination of the second and fourth ranked U.S. mobile service providers might stifle competition and raise consumer prices. Sprint was also a vocal opponent to the deal.
Despite the inability of one major telecom to buy another, major competition may enter the wireless phone and data business in the coming years. Since the development of fiber optic networks, Verizon and AT&T have both offered home-based cable and Internet services that compete with cable companies such as Comcast (NASDAQ:CMCSA), Cablevision (NYSE:CVC), Time Warner Cable (NYSE:TWC) and DirecTV (NASDAQ:DTV).
A common bundled service offered by cable and telephone companies is known as the triple play (phone, cable TV and high-speed internet). There appears little reason why AT&T and Verizon could not bundle a quad-service, including mobile device service into the package. If this were to occur, cable providers without satellite networks may find it essential to partner up with the independent mobile service providers in order to offer the same suite of services. Sprint would be a logical third-party provider for those cable companies, or a potential acquisition.
It took a while for Sprint to get the iPhone, but they finally got it. Now, they are getting the iPhone for prepaid much sooner than either of the major carriers. Further, Sprint is the only one of the three largest carriers with the iPhone that presently offers new customers an unlimited iPhone service plan. These two characteristics could easily give Sprint its first real advantage over its larger competitors in many years. It should also help calm some concerns over Sprint's ability to sell a sufficient quantity of iPhones.
Given that Virgin Mobile USA is starting to sell prepaid iPhone service essentially at the very end of the second quarter, the market is unlikely to know exactly how successful Virgin is at selling the smartphone until it reports its Q3 results in the Fall. Nonetheless, it is likely that Sprint estimates will be revised to the upside to reflect this new information.
Of the 38 analysts covering Sprint, five have a strong buy rating, seven have a buy, twenty have a hold, two have an underperform and three have a sell rating. Given that the majority of analysts have had a hold on Sprint for several months, just a few upgrades could quickly cascade the current tepid rating to a considerably more favorable one.
Disclaimer: This article is intended to be informative and should not be construed as personalized advice, as it does not take into account your specific situation or objectives.