Sprint Nextel (S), the third largest wireless carrier in terms of total subscribers, has recently announced its commercial launch of its long-term evolution (LTE) network. The launch will take place in five U.S. cities, and is set for July 15th. LTE is now the next generation wireless technology standard for high-speed data communications. The network is marketed as "4G LTE". The launch is seen as a bid to catch-up with the two largest wireless carriers, Verizon (VZ) and AT&T (T). Sprint already sells devices that work with LTE technology, such as HTC EVO™ 4G LTE, the LG Viper 4G LTE, the Samsung (SSNLF.PK) Galaxy Nexus, and the Samsung Galaxy S III. However, the company still operates in the shadows of Verizon and AT&T's massive LTE networks.
Verizon currently offers LTE services in 304 cities, which covers two-thirds of the U.S. population, while AT&T currently offers LTE service in 41 cities. Sprint will be launching the LTE networks in Atlanta, Dallas, Houston, San Antonio and Kansas City. The upgrading of wireless systems is seen as a preparation for this year's launching of LTE enabled iPhones, which are manufactured by technology giant Apple (AAPL).
Sprint reported 263,000 new postpaid accounts for the first quarter of 2012, well below the previous quarter's 539,000, but substantially more than one year ago. AT&T and Verizon, on the other hand, added fewer postpaid subscribers during the same periods. The company's total net additions for the past six consecutive years has been consistently above 1 million subscribers.
Prepaid iPhone
Apple's iPhone is one of the most popular smartphones in the country. Comscore, a marketing intelligence company, released a study in early May on the U.S. mobile market share. According to the study, as of the first quarter of 2012, around 14% of all mobile devices in the U.S. were Apple products, which translate into approximately 33 million devices. During that period, there were approximately 106 million smartphone users. 30.7% of those users had iPhones.
Leap Wireless (LEAP) and Sprint will be the first wireless operators to offer the iPhone on a prepaid basis. Leap will charge $150 less than the unlocked version in Apple stores. The carrier has only one prepaid plan that cost $55 per month with unlimited calling, texting and data usage. The data usage plan has a fair usage policy that slows down the speed to 100kbit/s when the customer goes beyond 2.3GB of data usage in a month.
Sprint will be selling the iPhone through its Virgin Mobile USA brand. It will be sold at the same price as an unlocked version from Apple stores. Although the price will be higher than Leap's offer, the prepaid plans of Sprint will start at $30 per month after discounts, when enrolled in auto-pay. The carrier will also offer unlimited data plans for $50 per month. Sprint has sold 3.3 million iPhones so far in the first two quarters of 2012. Sprint is also the only major mobile operator to continue to sign unlimited data plans for iPhones, with AT&T and Verizon both trying to phase out unlimited data.
The prepaid plans are much cheaper than that of AT&T's and Verizon's. AT&T's cheapest iPhone offering starts at $60 per month with a two-year commitment, while Verizon's cheapest iPhone offering starts at $90 with only 1 GB of data included.
Apple's decision to allow the iPhone to be sold with prepaid plans, which are lower than that of the leading carriers, might be a game changer for U.S. wireless services.
Dropping Nextel
Sprint is dropping Nextel's push-to-talk coverage completely in about one year. On June 18, Sprint announced that it added more coverage on its Sprint Direct Connect push-to-talk service. The coverage will be three times larger than that of the Nextel National Network with the addition of roaming. The carrier wants its Nextel customers to move to the new system that runs in a CDMA network so it can hasten the retirement of its old iDEN systems. It officially shut down the iDEN network in late June, giving its Nextel customers one year to either move into its Direct Connect services or find another carrier. It is believed that the shutting down of the iDEN network is a move to re-use its airwaves for its LTE expansions.
Many Nextel customers may not be very happy with losing the push-to-talk services. This will create an opportunity for AT&T and Verizon, as these carriers also offer push-to-talk devices. Sprint already started sending announcements to its Nextel users regarding the changes, with some devices only needing an upgrade on its software.
Sprint on the books
Sprint's shares are now up around 30 percent since hitting a 52-week low of $2.10 in late January 2012. The stock is still down around 39.9 percent from a year ago, which means that long-term investors still have a long way to go to break even. Sprint is currently trading at $3 with a trailing 12-months operating cash flow of $3.75 billion. The company has a highly leveraged balance sheet with about $22 million in debt, compared to its market capitalization of $9.3 billion. Despite increasing its capital expenditures in 2011 and 2012 as it undergo its Network Vision makeover, Sprint had a small free cash flow deficit of -$37 million in 2011 and positive free cash flow of $10 million in the first quarter of 2012.
I expect more positive news in Sprint's second quarter results announcement, scheduled for July 26. I expect its share prices to reach $3.75, or around 20% higher than its current market price.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
