Last year, Apple Inc. (AAPL) granted Sprint Nextel Corporation (S) permission to sell the iPhone (and various versions) in its retail stores. This move finally allowed Sprint to compete with rivals Verizon Communications (VZ) and AT&T Inc. (T) in the iPhone market. And with the introduction of Sprint's new 4G LTE network in various regions around the U.S., Sprint hopes to position itself as a viable threat in the telecom marketplace.
In addition, Sprint continues to offer unlimited data to customers - no other company offers this incentive. Both Verizon and AT&T have slowly made the move to shared data plans that provide customers with specific monthly data allotments for multiple devices.
In a perfect world, millions of customers would flock to Sprint leaving its competition scratching their heads wondering what went wrong. But Sprint still lags behind other telecom companies in customer volume and in the number of customers that purchase Apple devices.
iPhone 4S Price Reduction: A Smart Move?
Recently, Sprint decided to lower the price of the iPhone 4S at its retail outlets. Many analysts, reporters, and others see the price reduction as possible confirmation of the iPhone 5 release (many speculate an early fall release). If this proves true, then it is safe to assume Sprint has taken a preemptive approach to reducing its current iPhone 4S inventory to make way for the new iPhone.
It should be noted that Apple maintains strict guidelines when it comes to selling its products - the company would not have let Sprint lower the iPhone 4S price unless it was ready to introduce the new iPhone. Unfortunately, with limited consumer interest in the iPhone 4S, due mostly to the anticipated release of the latest version and the fact that many iPhone users already own an iPhone 4S, Sprint may take a loss by offering such as deep discount for the device.
So far, Verizon and AT&T have chosen not to reduce the price of the iPhone 4S. This may indicate that these companies don't have the inventory available to justify a price reduction or these companies simply don't want to give away products just to gain a few new customers. During the second quarter 2012, AT&T sold 3.7 million iPhone devices, Verizon sold 2.7 million devices, and Sprint sold 1.5 million devices.
But I think Sprint may be on to something. In its struggle to get out from the shadow of Verizon and AT&T, offering unlimited data plans and price reductions on popular smartphones may be the company's only option. If Sprint can generate additional interest in its products and services prior to the iPhone 5 release, maybe it can increase its customer base, particularly its iPhone customers.
Sprint's Financial Picture
According to quarterly income statements, Sprint has maintained steady sales/revenue over the past few quarters ($8.31 billion, June 2011; $8.33 billion, September 2011; $8.72 billion, December 2011; $8.73 billion, March 2012; $8.84 billion, June 2012). Investors should feel moderately confident in their investment, even though a little more movement towards double-digit sales/revenue would definitely help investors feel really secure.
One of the reasons for this period of stagnant growth could be the company's failure to invest in research and development. Instead, the company spends a large portion of its earnings on land improvements, buildings, and equipment. According to its annual balance sheet 2011, Sprint spent $14.01 billion on net property, plant, and equipment.
And while investing in land and equipment have helped the company build and maintain its brand, the lack of investment in research and development may explain why competitor AT&T has more customers, was able to introduce enhanced network speeds way before Sprint, and why the company has yet to offer a price reduction on the iPhone 4S.
AT&T, for example, spent $1.2 billion in research and development projects according to its 2011 income statement. The company earned $31.58 billion in the second quarter of 2012 in sales/revenue. Verizon, on the other hand, didn't spend anything on research and development according to its 2011 income statement, but reported $110.88 billion in sales/revenue for the second quarter of 2012. Verizon has built a reputation for providing fast Internet speeds to attract large numbers of customers. So while Sprint doesn't necessarily have to invest in research and development projects, it certainly wouldn't hurt.
In addition to AT&T and Verizon, Sprint still has to compete with smaller companies such as Windstream (WIN) and CenturyLink (CTL) which provide Internet, phone, and wireless services. While these companies cover specific regions, including rural areas, both have continued to expand and grow in a very small amount of time. Disregarding the impact of smaller telecom companies on the market could prove damaging to Sprint unless it takes action now to stand out from the competition.
Standing Out to Turn a Profit
I completely understand why Sprint continues to offer unlimited data plans and price reductions on popular mobile devices, but I think more is needed if it really wants compete with other telecom companies. Even with the roll out of its 4G LTE network, Sprint will have to work even harder to make a permanent dent in the market.
Investors should hold for the moment to give Sprint more time to reveal how it plans to improve its current standing against its competitors. Over the next few months, Sprint plans to increase its 4G LTE network, continue to offer unlimited data plans, and will have the ability to sell the iPhone 5 alongside AT&T and Verizon. All this in conjunction with the upcoming holiday shopping season should prompt investors to hold or sell.
Sprint really needs to impress if it wants to continue to attract investors. I think the company has shown it has the ability to generate steady sales, but seems shy when it comes to going after larger chunks of the market. These small steps should clear the way for bigger leaps. If the company fails to take those leaps, investors may decide to take some leaps of their own.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.