Sprint Will Shoot Higher On New 4G LTE

| About: Sprint Corporation (S)
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In mid-February, the Obama administration proposed compensation of television station owners and others who voluntarily surrender unneeded airwaves so they may be auctioned off. The move displays a rare instance of the government trying to compensate private companies with the proceeds from an auction of public property - broadcast licenses - once given free.

Why the generosity? Because of us greedy consumers.

Surging consumer demand for smartphones and the streaming speed needed to operate them have been the headache of most major companies, including AT&T (NYSE:T) and Verizon (NYSE:VZ). Sprint (NYSE:S) is now taking action, and I believe this move will benefit them in the long run.

The First Time

The problem was first addressed back in 2008. The explosive growth of smartphone users put unforeseen pressure on an already taxed network system. Because of this, companies were forced to deal with it. Some dealt in better ways than others. Both AT&T and Verizon had long been proponents of freeing the airwaves.

Verizon preemptively tiered its data plans in July 2011, allowing for more control over streaming. AT&T, on the other hand, was backed into a corner, and attempted a not-so-customer-friendly plan of throttling data. The availability of spectrum is of primary importance to AT&T, as it has long occupied the number two spot behind Verizon in terms of subscribers, and is now facing consumer backlash.

When the U.S. government auctioned off airwaves for the first time, AT&T and Verizon were the biggest winners of airwaves suitable for smartphone use, spending a combined $16 billion. As of 2010, the two companies had almost 60% of all wireless subscribers. When the next auction takes place, it is possible that with ample resources, both companies could take another massive share of airwaves again.

Circumventing the Competition

That is why Sprint is beginning its brilliant strategy. The company is avoiding the auction altogether and flying solo. The company plans to head off any possible limitation of 4G use and transition by changing its own iDEN spectrum for LTE use. This frees up quite a bit of network space and, best of all, the company won't need to pay for it.

Sprint's President of Network Operations, Steve Elfman, revealed the strategy on Thursday. Specifically, Sprint will convert its Nextel iDEN push-to-talk infrastructure over to LTE 4G hardware, and use the resulting vacant 800MHz wireless spectrum to fuel its 4G growth.

Currently, the push-to-talk feature use is at an all-time low, with only about 6 million. That's down from 20 million when Sprint first invested heavily in iDEN infrastructure. According to Elfman, this is evidence of where the market is headed, and to stay competitive, Sprint will cut the feature in favor of what the consumer wants.

What the Others Will Do

Both AT&T and Verizon will have to duke it out over the airwaves that will be freed during the next auction. In terms of which has the better hand, anyone who has looked at the financials of the two would back Verizon.

The company finished 2011 very strong, both in terms of revenue growth and by delivering an 18.2% total return to our shareholders for the full year. Regarding strategic moves, Verizon strengthened its ability to provide fully integrated solutions by creating Verizon Enterprise Solutions, a sales and marketing organization, to harness all of Verizon's solutions for business and government customers globally. In addition, Verizon Wireless announced agreements to purchase Advanced Wireless Spectrum licenses, an important step toward meeting customers' needs for wireless data and broadband services. These moves, combined with investments in FiOS, LTE, and global IP and cloud-based services, prepare Verizon for some significant growth, provided it can capitalize on this upcoming 'open airwaves' event.

AT&T, on the other hand, has lots of capital tied up at the moment. It is still dealing with union leaders over issues such as pensions and healthcare. This is incredibly powerful for the union, which could hold a potential walkout over the heads of corporate leadership. With money already going to legal matters, a loss in revenue or manufacturing could be disastrous.

In addition, AT&T has already committed to a large marketing push for Nokia's (NYSE:NOK) new Lumia 900 phone. While that money seems to have been put to good use (sales have performed "better than expected," according to an AT&T spokesman), it still leaves less money for additional airwave purchases.

What Will Happen

So, where should investors look? I believe that Sprint's decision shows great vision and leadership. Changing its own system shows adaptability, which is key to any company in the technology market. In addition, it is cost-effective, saving the company millions in airwave purchases and potential losses from not offering a good 4G program, like its competitors.

The change-over is bound to cost some money, so the investor also has a unique opportunity to benefit from Sprint's spending as well. Antenna-building companies such as American Tower (NYSE:AMT) along with other companies that will have a hand in the conversion, like Intel (NASDAQ:INTC) and Cisco (NASDAQ:CSCO), could also see a boost.,


As mobile data usage is expected to grow by a factor of 16 over the next five years, the spectrum made available by this legislation is key to meeting that demand. All companies who can capitalize on this kind of growth stand to benefit, including Apple, Verizon, and Motorola. Verizon has an average price target of $39.55, and is trading at $37.75. AT&T has a dividend yield of 5.8%, and has a 5-year dividend growth rate of 4.8%.

It is my prediction that Verizon will see the most significant growth from this legislation, while AT&T will remain steady. That being said, Sprint will also benefit from its strategic move from iDEN to LTE.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.