Sprint (NYSE:S) may have done well so far touting its unlimited plans to differentiate itself from the rest of the national carriers, but that has changed with T-Mobile’s launch of similar plans last month. With the announcement, T-Mobile signaled that it was back competing in the market after months of distraction caused by AT&T's (NYSE:T) botched acquisition plans. A further sign of intent came late last week when the company announced a deal with Crown Castle to lease back 7,200 cell towers for $2.4 billion in cash in order to fund its network expansion plans. This came just weeks after T-Mobile hired a a new CEO who said that he will be looking to target Sprint in order to stop T-Mobile’s postpaid subscriber losses.
The $24 billion cash influx from the Crown Castle deal comes at a critical time for T-Mobile, which needs the money to fund its recently announced $4 billion 4G network evolution initiative. As part of the plans, T-Mobile will be looking to build out a nationwide LTE network in 2013, in addition to expanding and strengthening its existing HSPA+ coverage. With T-Mobile making reinvigorated efforts to reclaim postpaid market share with these initiatives and mitigating Sprint’s unlimited plan advantage with the launch of similar plans, it looks as if Sprint now has to fend off the T-Mobile threat in addition to contending with the duopoly of Verizon and AT&T.
Unlimited Plans Are Highly Valuable
Verizon (NYSE:VZ) and AT&T have been trying to distance themselves from unlimited plans for quite some time now. Both had stopped offering unlimited plans to new subscribers a year ago, and more recently Verizon stopped its grandfathered unlimited users from availing handset subsidies if they choose to keep their plans (see "Verizon’s Share Everything Plans Could Kill The Last Unlimited Plans"). It is also likely that AT&T, having made its displeasure with unlimited plans clear on many occasions, will come up with similar ways of discouraging usage of unlimited plans as it follows in Verizon's footsteps and promotes its own tiered data share plans (see "AT&T Looks To Reduce Subsidy Pressures While Boosting Revenues Through Shared Data Plans"). Taking advantage of this scenario, Sprint has managed to differentiate itself from rivals through effective marketing of its unlimited plans.
However, now that T-Mobile has also launched unlimited plans, Sprint’s competitive advantage has narrowed a tad. Sprint can no longer claim to be the only national carrier with unlimited plans. Moreover, T-Mobile's new plans are also cheaper than Sprint's.
Threat to Sprint May Not Be Much
On the other hand however, Sprint has a head start on T-Mobile in building out 4G LTE and expects to cover 123 million POPs by the year-end. Moreover, it has had the iPhone for a year now and will continue to have it for the next three years, at least according to its last year’s commitment to Apple. T-Mobile, meanwhile, will probably not have the iPhone for another year at least considering it was again overlooked for this year’s iPhone 5 launch. Without the iPhone, T-Mobile has now reported more than 10 consecutive quarters of postpaid subscriber losses.
T-Mobile is trying to address the iPhone situation by allowing customers to get an unlocked phone purchased elsewhere and sign up for its unlimited plans, which are much cheaper than Sprint's. However, considering the hassle that such a procedure would entail and also the fact that not many are willing to pay the full, unsubsidized price of a smartphone upfront, we believe that Sprint has little to worry about in the near term. However, as T-Mobile builds out its LTE network in 2013 and eventually manages to bring Apple on board, Sprint might start feeling the competitive pressure of another carrier offering cheaper unlimited plans.
Disclosure: No positions.