Seeking Alpha
What is your profession? ×
Long/short equity, growth at reasonable price, research analyst, deep value
Profile| Send Message|
( followers)

Sprint (NYSE:S) continues with an aggressive plan of unlimited data pricing while wireless leaders AT&T (NYSE:T) and Verizon (NYSE:VZ) move towards capped data plans. Back in May, Sprint aggresively promoted an unlimited plan for the iPhone 4s to directly attack fed-up Verizon customers.

The company offers a comprehensive range of wireless and wireline communications services serving more than 56M customers. It offers mobile data services under both the Sprint and Nextel brands plus prepaid brands including Virgin Mobile USA, Boost Mobile, and Assurance Wireless.

The telecom sector has been ripe with pricing pressure for decades now. The question remains whether this move is good for Sprint or incredibly naive for the market leaders.

With Sprint on the verge of collapsing earlier this year, did AT&T and Verizon just provide a lifeline by handing data customers to Sprint? Will Sprint end up with the highest data users and hence margins suffer? Or will the more typical data customer now view Sprint as a viable option?

Sprint Data Plan

Sprint is now left as the only major domestic carrier with the iPhone and an unlimited data plan. A huge advantage that on the surface appears like a lifeline thrown in by the duopoly. Either Sprint is needed as a 3rd wireless provider for anti-trust reasons or the duopoly allowed Sprint to survive at the point it was about to crumble.

T-Mobile, the 4th largest domestic wireless provider, announced an uncapped data plan. While competitive with the pricing from Sprint, it doesn't offer the iPhone. This appears to do nothing for T-Mobile has it continues to become a distant provider with Sprint increasing becoming the alternative choice.

Sprint iPhone Deal

Last year the company agreed to a 4-year, $15.5B plan with Apple (NASDAQ:AAPL) for the iPhone. While initially seen as a losing deal (see ZDNet article), the plan has helped stabilize churn and provide the company an advantage over T-Mobile and other small competitors.

Maybe costly in the short-term, it appears to be the deal that saved the company. The unlimited data plan would have little ability to attract major customers without the iPhone offering. Without the iPhone offering, Sprint would have little ability to attract customers back to the brand.

Q2 2012 Performance Highlights

The company set some important milestones in the Q2 earnings report highlighting the major reversal of fortune.

  • Best ever Sprint platform postpaid ARPU of $63.38 drives Sprint platform wireless service revenue growth of 16 percent year-over-year
  • Best ever Sprint platform postpaid churn of 1.69 percent
  • Continued strong iPhone sales of nearly 1.5 million - 40 percent to new postpaid customers
  • American Customer Satisfaction Index ranked the company number one among all national carriers in customers satisfaction
  • Network Vision deployment continues on track with launch of 4G LTE in five major markets and 15 cities on July 15
  • Continue to expect 12,000 LTE sites on air by the end of 2012

The company has made huge strides on customer service and churn leading to some impressive results. Shutting down the Nextel network will provide significant benefits in 2013.

Verizon Data Plan

Back in June, Verizon Wireless unveiled a new wireless data plan. The plan is interesting as it strips away voice and message charges and focuses on data usage.

The other interesting part is the concept of sharing data usage on multiple devices such as a smartphone and a tablet. Or even a family with multiple smartphones on the same bill.

For a consumer that uses Wi-Fi most of the time, the plan is comparative depending on voice traffic. For a customer that would use 6GB of data or more, this plan quickly becomes very expensive as the charge for 2 smartphones hits $160.

With 4G encouraging more and more use of video, the unlimited plans will likely set Sprint apart from the competition.

Conclusion

The duopoly of AT&T and Verizon appear willing to allow Sprint back into the wireless competition. While the move to data usage based pricing is understandable, the companies waited to make the move after Sprint became a real threat again.

The market has quickly forgotten that Sprint has a large revenue base of $35B. While dwarfed by the $115B+ revenue bases of the duopolies, Sprint is no slouch in the sector.

With the stock doubling this year, investors should be cautious on rushing into it right now. Competitors trade at a 1-2 multiple of revenue so plenty of upside exists if the turnaround is for real.

The ultimate determining factor of success just might be whether Sprint is able to obtain the low data usage customers. If that happens, Sprint will gain as the duopoly suffers.

Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Please consult your financial advisor before making any investment decisions.