Is Sprint Finally in AT&T and Verizon's League?

Sprint (NYSE: S  ) will release its quarterly report on Wednesday, and investors have been anxious to see whether the company's deal with Japan's Softbank will help the No. 3 U.S. carrier compete more effectively against AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) . Yet at least for now, Sprint earnings aren't expected to go positive for the foreseeable future as conditions in the U.S. wireless market remain as fierce as ever.

Sprint's deal with Softbank essentially rescued the U.S. carrier from irrelevance in the quickly evolving domestic market for wireless services. But with Verizon having taken complete control of its Verizon Wireless division and with AT&T looking to respond with a major strategic action of its own, Sprint needs to get itself in competitive shape as quickly as possible. Is the company up to the job? Let's take an early look at what's been happening with Sprint over the past quarter and what we're likely to see in its report.

Stats on Sprint

Analyst EPS Estimate

($0.22)

Year-Ago EPS

($0.26)

Revenue Estimate

$8.81 billion

Change From Year-Ago Revenue

0.6%

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Will Sprint finally stand up to Verizon and AT&T?
In recent months, analysts have gotten a bit more pessimistic about Sprint's earnings prospects, widening their third-quarter and full-year 2013 projections modestly. The stock has done better, though, rising more than 10% since late July.

Sprint's second-quarter earnings report was bittersweet, as shares rose despite some dire news. The company's quarterly loss was 70% worse than investors had expected, and the company managed to lose more than 1 million contract customers during the quarter. Yet shares rose on the news, with the implication that the results could have been worse. Improving average revenue per user was indeed good news, and AT&T and Verizon both suffered from the realization that Sprint wouldn't disappear anytime soon.

Now, though, it's up to Sprint and Softbank to execute on their plans. Softbank has started with its capital injections in order to allow Sprint to make strategic acquisitions like the purchase of Clearwire. In the long run, though, Softbank hopes to use combined economies of scale to negotiate better deals with smartphone and mobile-device makers, boosting profits or giving Sprint more room to compete on price against Verizon and AT&T.

One contentious area involving the major U.S. carriers has been in coming out with early upgrade plans. AT&T and Verizon followed T-Mobile in giving customers the right to upgrade their devices early in  exchange for monthly device payments on existing plans in addition to regular voice and data subscription costs. Last month, Sprint followed with its One Up program, offering the choice of paying for their phones in 24 equal installments, with the right to upgrade after a year. Sprint also offered a $15 monthly discount on several of its service plans to offset the unsubsidized costs of the phones. As a way of weaning Americans off costly subsidies, the plans are a good first step for Sprint and its rivals.

Even after the Softbank deal, some still believe that a merger of Sprint and T-Mobile would make sense. As the only potential deal among the four largest carriers that is likely to have any chance of getting antitrust approval, a Sprint/T-Mobile combination would be interesting. But given the roadblocks that antitrust regulators have thrown at a deal involving two of the top five airlines in the industry, even a Sprint/T-Mobile deal might not pass muster.

In the Sprint earnings report, watch closely for changes in the way the company is doing business. If it simply gives investors more of the same, excitement following the Softbank deal might well give way to longer-term losses until Sprint shows it can reap rewards from its new combination.

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  • Report this Comment On October 29, 2013, at 12:17 AM, Fabe76522 wrote:

    A Sprint/TMobile merger would be a very bad idea. They use different technologies and are not compatible. Sprint had to run Nextel on another network and learned the hard way that it was a bad idea.

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