Sprint's (S) earnings have decreased in each of the last five years, primarily because it is losing business to its two larger competitors, Verizon (VZ) and AT&T (T). Sprint is a company that has been in a long-downward spiral, and which is badly in need of a growth catalyst. In this article, I will show how Sprint's much needed catalyst might come in the form of its new "Network Vision" plan, and how this new plan could impact its attractiveness for investment.
Sprint moves forward with its "Network Vision Plan"
The "Network Vision" is a multi-year initiative to provide an enhanced network experience which will make it possible for Sprint subscribers to have the same kind of high speed LTE service that AT&T and Verizon Wireless offers to their subscribers." The first step in the plan is for Sprint to decommission its "Nextel Direct Connect phones." In mid June, Sprint signed a contract with a construction arm of Overland Park-based Black & Veatch to deactivate the Nextel network. In mid June, Sprint announced that it would begin rolling out its "Network Vision" that will provide advanced 3G and 4G LTE service in San Antonio, Dallas, Houston and Atlanta by the end of the month. Service in Austin should be available by the end of the year. Sprint expects to roll out the 4G LTE service to 173 million users by the end of the year."
Sprint's iPhone rollout
Sprint recently announced that it would sell iPhones through its Virgin Mobile pay-as-you go brand. Virgin Mobile will sell the iPhones for between $550 and $650 on a no-contract and no credit check basis. Sprint needs to sell 30 million iPhones over 4 years, to meet its $15.5 billion commitment to Apple. "That equals 7.5 million per year, and Sprint has only sold 3.3 million in its first 6-months of carrying the phone." Sprint Nextel's CEO Dan Hesse said "he would take a "$3,250,830" cut in pay this year, after coming under fire from some shareholders disappointed with the hit the company's results took from subsidizing Apple's (AAPL) popular iPhones." I believe that the only reason that Sprint is selling iPhones through Virgin Mobile, is because it needs to make up ground in order to meet its committeemen to Apple.
Positives for Sprint moving forward
In early June, the company received $1 billion in financing from "Deutsche Bank and a syndicate of other banks to purchase network equipment from Ericsson". "The deal could be backed by another $2 billion, meeting Sprint's April 25th earnings call guidance that they were looking to secure vendor financing in the range of $1 to $3 billion." This $1 billion financing agreement is good news for Sprint, which said at its first quarter earnings conference that it would need $5 to $7 billion to implement its Network Vision strategy. Sprint's executives believe that the company will be able to compete with its larger competitors, Verizon and AT&T, once it completes its Network Vision plan.
Sprint has continued to lose money, but in the first quarter, it decreased its earnings per share losses by 48%, from $0.43 to $0.29.
The stock price is trending upwards, and since January 10th, the stock price has increased by 50%, from $2.10 to $3.16.
Negatives for Sprint moving forward
Sprint has been successful in getting $1 billion in financing to use towards the building of its LTE Network Vision build-out project. However, the company will still need an additional $4 to $6 billion in financing to complete the project, and there are still doubts about whether the company will be able to secure that amount of financing.
If Sprint completes its network Vision build-out it will still need device makers to produce products that will support its unique frequencies. "Without a breadth of devices to offer, all the effort put into Network Vision would become a total waste."
"Due to overwhelming demand for Galaxy S III worldwide, Samsung has informed us they will not be able to deliver enough inventory of Galaxy S III for Sprint to begin selling the device on June 21." Sprint said it is working closely with Samsung to offer the Android smartphone as soon as possible, but did not have a new launch date to share.
Sprint's plight reminds me of Nokia (NOK). Sprint was once a market leader, but has fallen because it management was slow to adapt to changes in technology. Sprint like Nokia is now in the position of desperately trying to catch up with its competitors. Sprint should be commended for implementing its Network Vision program, and for contracting with Apple, to offer its customers the highly popular iPhones.
Sprint has a lot of catching up to do, and there is no guarantee that its new initiatives will be successful. Even though Sprint has made some bold moves, it must still deal with the burden of building out a new LTE system, and taking on up to $7 billion in additional debt, on top of the $22.27 billion in debt that it already holds. As a long-term investor, I would rather invest in Verizon or AT&T, which have reasonable debt loads, along with profits and enough cash to pay generous dividends. However, investors that are less risk adverse might be willing to invest in Sprint. After all, the stock price has increased by 50% since January 10th, and could still move higher once its Network Vision plan becomes operative. Though Sprint's stock is volatile, I still recommend buying, especially if you have faith in the Network Vision plan.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.