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Why Soaring Data Usage Isn't Good for Sprint

The CTIA just recently released some stats on the domestic wireless industry. Incredibly, mobile data usage posted a 104% jump to 1.16 trillion megabytes of data delivered through U.S. mobile data networks between July 2011 and June 2012. That's been driven both by the migration to faster 4G LTE and broader adoption of mobile devices such as smartphones and tablets. Since Sprint Nextel  (NYSE: S  ) still offers unlimited data plans for a fixed fee, it has no direct revenue to gain from increased data usage, while its larger rivals AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) have since switched to tiered plans, where more usage translates into more revenue. See the following video for more.

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Evan Niu, CFA, owns shares of AT&T and Verizon. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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  • Report this Comment On October 13, 2012, at 6:35 PM, prginww wrote:

    Duh.... Unlimited is a share gain tactic for Sprint while the other two duopolies are in a milk mode. "Unlimited" is a marketing ploy geared to sell "no worries".

    You have to estimate how many of the usage metered subs: VZW and T had estimated 3%-5% would exceed the caps previously -- now let's say that would be more now, and assume 10% of the subscriber base. Let's assume that 10% would have been charged 30% more had they been on a metered plan with overage. So 10% of the subscriber base at 30% higher ARPU means that the aggregate ARPU for the entire base would have been 3% higher -- granted all contribution margin since it's only a price delta.

    You then have to do that math of assessing trade-off of share gain (or mitigation against share loss) in terms of subscriber impact against 3% ARPU accretion. In other words a delta of 3% on the subscriber base is a breakeven against a 3% ARPU accretion of measured service (and there I was using fairly generous assumptions of portion of base that would be heavy users and their overage spend).

    Obviously, Sprint can shift to a similar pricing regime at some point in the future -- and everyone with a 3 digit IQ would expect them to do so eventually, but not before it completes its Network Vision and rolls out LTE on pretty much all its 38K cell sites as well as rolling out its 800mhz for both CDMA voice and LTE-Advanced. At that time, Sprint will have coverage and in-building penetration parity with the Big 2, and post-paid churn below 1.5%. That's the time to shift positioning and start to increase ARPU yield by repositioning its pricing.

    Doing it now by matching Verizon and AT&T with a price increase (that's what measured service really is) while Sprint has a network competitive deficiency currently would be assinine.

  • Report this Comment On October 13, 2012, at 10:50 PM, prginww wrote:

    Fool has to come up with a "like" button so that insightful analysis, like the one above, may be liked.

  • Report this Comment On October 13, 2012, at 11:06 PM, prginww wrote:

    Apropos and well put responses. Sprint's glide path is Northbound and only a fool would bet against it. This is probably the most undervalued and underappreciated stock in the S&P 500. Tighten your seatbelts, we have just past the point of inflection which manifests another double within 12 months.

  • Report this Comment On October 13, 2012, at 11:19 PM, prginww wrote:

    Consumers are finally noticing that AT&T and Verizon = The Most Expensive Wireless Plans in America. For the post-paid customer, the fact remains that Sprint is the only U.S. carrier to offer them the iPhone experience with unlimited data plans starting at $79.99 per month. Plus, Verizon now charges its customers $30 to upgrade to a new phone when they renew. AT&T charges $36. But Sprint only charges $18. An investment writer recently summed it up best: “Sprint offers the best value proposition for a new smartphone user. I got my first smartphone on Sprint because a new AT&T or Verizon data plan is outrageous. My Sprint plan includes 450 afternoon mobile-to-landline minutes, unlimited other minutes, and unlimited texting and data for $79.99. Unlimited AT&T or Verizon plans would approach $150, and to get a comparably-priced package, I'd have to settle on limited data or texting plans, which I'd have to constantly try to not blow through. Why get a smartphone if you can't have fun using it?” Sprint also placed first in the industry in customer satisfaction, according to results from the 2011 and 2012 American Customer Satisfaction Index. They also just received the J.D. Power award for being top-ranked in the consumer wireless purchasing experience.

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