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How Sprint Can Overtake Verizon and AT&T by Providing Wireless High-Speed Internet

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Recently Sprint (NYSE: S  ) Chairman Masayoshi Son fired a shot that may have sent a shiver up the spines of Verizon (NYSE: VZ  ) , AT&T (NYSE: T  ) , and Comcast (NASDAQ: CMCSA  ) . In a speech to the U.S. Chamber of Commerce, Son, who is also chairman of SoftBank, which owns 80% of Sprint, said it plans to develop a wireless broadband service to take on cable and fiber broadband providers, like Comcast and Time Warner. If Comcast and Time Warner successfully merge, they'll have almost 40% of U.S. broadband subscribers.

Changing the game
Some pundits took this as bluster to sway regulators to consider Sprint's possible acquisition of T-Mobile US (NYSE: TMUS  ) in a broader context, including not just wireless carriers but also cable providers. However, if Son was serious and Sprint can accomplish the feat, it could shift a huge amount of capital from fixed-line broadband providers to wireless broadband providers. It could also fundamentally change the relationship between content distributors, like Netflix, and cable providers. Finally, if the price is right it could bring more subscribers to Sprint. 

Taking advantage of the opportunity
Sprint has two advantages over Verizon and AT&T. First, it hasn't sunk billions into cable and fiber lines, like AT&T (U-verse) and Verizon (FiOS). So Sprint may be willing to take the risk and upfront financial hit to reap a long-term gain in market share against the number one and two wireless carriers.

In addition, Sprint has 184 MHz of spectrum, which is more than Verizon (83 MHz) and AT&T (77 MHz) combined. However Sprint has yet to take advantage of the spectrum in a meaningful way. The Sprint 4G network is notoriously slow in comparison to its chief competitors.

In layman's terms, spectrum is the invisible communication signals that travel through the air by radio frequency. Television broadcasters, radio stations, and government agencies, as well as mobile broadband providers, use it to distribute their programs and data. However, it's a finite resource that is controlled and parceled out to wireless carriers by the government and it's in short supply.

Although the FCC has plans to free up more spectrum for broadband use, it remains to be seen if it will go to the highest bidder (helping the market leaders like Verizon or AT&T) or be allocated thorough some other system (giving Sprint, T-Mobile, or other lesser competitors a shot).

In a perfect world, more spectrum should lead to a faster, more reliable wireless network, but it's actually a more complicated process than that. Certain types of spectrum are of a higher quality and easier to work with. I'll spare you the technical mumbo jumbo and leave it at this: Sprint's inability to maximize its spectrum with a faster and more reliable LTE network hasn't inspired much confidence in the marketplace or grown its subscriber base. Sprint lags way behind Verizon and AT&T based on the speed and reliability of its current network, according to a recent study by RootMetrics

Increasing speed and reliability
To overcome the cable and fiber providers, Sprint or any other wireless carrier needs to be as fast and reliable as the fixed lines. The cost of the service also has to come down substantially.

According to some academics and tech companies, the capability to provide speed and reliability to match the cable providers is right around the corner. Currently, Sprint's Spark wireless network has speeds that compare to middle of the road Comcast plans. Spark sends around 50 to 60 megabits per second, but Sprint claims the technology is in place to reach speeds over two gigabits per second.

Opening the floodgates
Beyond speed and reliability, the biggest issue is price. It's estimated that the average broadband user utilizes 40 to 50 gigabytes of data a month, which runs around $40 to $50 a month with a fiber or cable provider, like AT&T or Comcast. In sharp contrast, most mobile plans charge at least five times more – around $250 to $300 for the same amount of data.

The first wireless provider to drop its data prices significantly will have a huge advantage over the others. Son has threatened a "price war" and an offensive like this would surely get the attention of wireless carriers, cable providers, and investors. But even Son admits a price war is not sustainable unless Sprint and T-Mobile work as one. Only then will they have the scale to shift the wireless playing field.

Catching a fool's wave
If Sprint or any other wireless carrier moves in this direction, it could present a huge opportunity for the well-positioned investor. The key is staying informed and paying close attention to the coming developments in spectrum availability, wireless broadband pricing, and wireless carrier initiatives in this area. Technological and/or pricing breakthroughs could cause the game to change on many fronts, affecting cable and fiber broadband providers, content distributors, and other wireless carriers. 

Your cable company is scared, but you can get rich
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 


Read/Post Comments (10) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 30, 2014, at 7:22 AM, SisterChiara wrote:

    At the risk of looking quite ignorant --which I am-- could you give me a few topics to Google so I know what it means when "Sprint claims the technology is in place to reach speeds over two gigabits per second." It is that word 'technology' that I want to know more about. It seems to me....again, knowing very little here...that the word would cover more than just one component. Thank you so much. Your article is very clear and gives a good, concise image of the situation.

  • Report this Comment On March 30, 2014, at 10:20 AM, chrisb21 wrote:

    Here is good link to start with:

    It gives you an overview of Sprint's claims and the challenges it faces making the technology available across the board.

  • Report this Comment On March 30, 2014, at 10:47 AM, SisterChiara wrote:

    Thank you so very much for the link. I'm off now to understand this better before I make my/our first stock investments.

  • Report this Comment On March 31, 2014, at 4:01 AM, PassthePuck wrote:

    Hum, thank you for finally catching up. I bought Sprint back at $2.64 because I new that their TDD-LTE was going to be the network to beat! The other top two doesn't even have a chance! This stock is moving from what $8.50 something to $25.00 in two years....good luck!

  • Report this Comment On March 31, 2014, at 5:17 PM, cloud4g wrote:

    The network to beat is the network that reaches national coverage and people subscribe.

    The problem Sprint-Softbank continue to be plagued with is the high cost of deploying into 2.6GHz spectrum. It does not matter how much of the spectrum commodity Sprint has... they have had 2.6GHz spectrum prior to investing that to help form 'New' Clearwire in 2006. Neither Sprint's prior attempts to use the spectrum nor 'Old' or 'New' Clearwire over the span of the combined period of the past ~14 years has put the spectrum to use that has paid for its cost of sub-licensing or building networks.

    The problem comes down to not figuring out how to deploy more densely while cutting costs. Until investment speculators figure that out, all the talk about vast amounts of spectrum are a waste of investor's time.

    This article is misinformed.

  • Report this Comment On April 01, 2014, at 1:23 AM, ecbatana wrote:

    Let's not forget that the possible TMUS merger is nothing but a shorter cut to expedite 'Spark' for Sprint. With TMUS in hand it would most definitely be cheaper to build-out Sprint's 'Spark' network.

    Dan Hesse, Sprint's current CEO, and Masayoshi Son, its current Chairman, have on numerous occasions manifested in public they are on a mission to take on AT&T and Verizon and they are not joking. Only a fool that bases his decisions on metrics from the prior 12 to 60 months revenue and Ebitda earnings would have myopic vision as to what is in their periphery. Since Softbank acquired Sprint they spared no time truncating their outdated 'bête noir,' Nextel, which had been in the plans long before the acquisition. Sprint also added the remaining Clearwire spectrum to its own repertoire of 800, 1900 and 2500 Mhz, leaving it with a total of 184 Mhz, which is currently the largest hoard of licenced spectrum by any telecom in the USA. It should also be noted that Sprint now has over 130 Mhz of the 2500 band of spectrum, giving them far more capacity than VZ and AT&T combined. Remember, 4G is not just about speed but it needs to facilitate capacity to enable consistency and reliability to maintain those 4G speeds.

    The past TTM-TSY is a bygone, however the future is where you will find Elderado (Sprint) at $25 and that is not in the too distant future.

    If its any consolation to those of you that have doubts about Sprint's financials, then just look at Mr. Son's 37.6% holdings in Alibaba Group's holdings. This company gets more revenue than Ebay and Amazon, and in one day during the holidays consummated over $5.7 Billion in revenue. This company is no Facebook, Twitter etc but rather a behemoth the likes of which we have not seen on Wall Street. If AMZN and Ebay have a combined market cap. of $250 Billion then it doesn't take much convincing to estimate Mr. Son's 37.7% holdings to be valued at approx. $100 billion. He is the Genghis Khan of Wall Street. With his arsenal of already proven spectrum, which he acquired in his Sprint acquisition. Sprint's Tri-band spectrum will include TDD LTE-Advanced and FDD LTE, enabling Sprint to be the first company to introduce a world phone with critical mass.

  • Report this Comment On April 01, 2014, at 2:47 PM, ecbatana wrote:

    Sprint at $25!!!!!!!!!


  • Report this Comment On April 01, 2014, at 9:28 PM, taylorlong723 wrote:

    Please do not invest in Sprint. They will be going out of business soon. Sprint doesn't work. They have been saying that their 4G will work for years now...still doesn't work. (Check consumer reports if you don't believe me). You really think they can get their spark to work if their 4g doesnt even work yet???? I think not!

    There's the proof. Look what Sprint Puts its customers through. Most the people on here defending Sprint Are Sprint Trolls. Here is the proof:

    1. Sprint Bullies customers on social media -->

    2.Sprint provides HORRIBLE Service.

    3. Sprint also tires to cover up the HORRIBLE Service

  • Report this Comment On April 02, 2014, at 9:19 AM, koopatroopaflyer wrote:

    Sprint cannot even stick with one type of 4g technology before they dump it and start on another (wimax 4g, 4g LTE, now sprint spark). Sprint cannot even complete the vision network updates to get any speeds on their 4g networks. And most of the general data speeds are 6-39kb per second. Can we say dial up of the cell providers?

  • Report this Comment On April 02, 2014, at 9:27 AM, sprintsux247 wrote:

    just don't visit any torrent sites on sprint wireless network. They will send you one warning then cut you off. So much for the warning lol

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Chris Brantley

Chris Brantley is a contributor at The Motley Fool specializing in sports-related businesses, the food and beverage industry, and whatever else piques his curiosity in the world of business and beyond.

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