Sprint Playing in iPhone's League

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Could it be that the Apple (Nasdaq: AAPL) iPhone has found its match?

Sprint Nextel (NYSE: S) is reporting that the launch of its iPhone-killer Instinct smartphone is exceeding expectations. Sales of the Samsung mobile device have already broken company records, and both Sprint and Samsung say they are scrambling to fill sales channels.

Of course, without seeing actual numbers, this could be a manufactured shortage. But Sprint claims that the initial quantities ordered were the largest of any other next-generation handset. And the company is pushing a huge marketing budget -- at least $100 million -- to make the Instinct a winner. So I don't doubt that the Instinct is captivating iPhone holdouts or Sprint Nextel subscribers who were anticipating the release.  

In this Fool's mind, though, two things made the launch of Instinct a success:  a $130 price and the Apple iPhone. Without one or both of these, the Instinct would still be a really cool device, but sales would be along the lines of any other attractive Nokia (NYSE: NOK) or Motorola (NYSE: MOT) smartphone. Thanks to Apple, high-end media phones are almost a must-have. And thanks to the next-generation iPhone being priced at $199 through partner AT&T (NYSE: T), the mass market is now in play.

Offering lower-cost, subsidized devices is a killer strategy that successfully brought once-pricey Research In Motion (Nasdaq: RIMM) BlackBerrys into the consumer space, so it's easy to see why a feature-rich device like the Instinct would be a hit. It also bodes well for the release of the next-generation iPhone -- Steve Jobs should have no problem selling 10 million devices this year with the new, lower prices.

But because this is not a zero-sum game, the Instinct will not displace the iPhone. This is a whole new market demographic opening up, and the carriers are paying dearly in subsidies to grab hold of subscribers. No doubt Sprint Nextel is taking a big hit up front on the Instinct -- just as AT&T is with the new iPhone -- but it certainly will help the company keep and grow subscriber rolls. But only time will tell whether it will help Sprint Nextel -- and investors -- score big.

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