What Sprint's Upcoming Price War Means for Your Wireless Bill

As Sprint prepares to take on AT&T and Verizon, here’s what you need to know.

Aug 17, 2014 at 1:30PM

Who says you can't teach an old dog new tricks? Looking back at third-place telecom giant Sprint (NYSE:S), it's truly remarkable just how far the company has come in the span of three years.

Rewind to late 2012 and early 2013, and Sprint appeared to be on death's doorstep.

Sprint Logo

Source: Sprint

The company was hemorrhaging money, its stock price had fallen by more than 50% from just six months prior, and a once-promising multibillion-dollar investment had transformed into a massive financial headache for Sprint. 

Fast-forward to the present, and today's Sprint has gained an entirely new lease on life, thanks in no small part to the timely cash infusion from now-majority investor Softbank. As a result, Sprint has signaled its intention to take on industry heavyweights AT&T and Verizon Communications in the months ahead, and consumers should be paying attention.

Sprint reaches a turning point
As the result of a number of factors, Sprint plans to cut prices in hopes of stealing customers from the likes of AT&T and Verizon Communications. And while Sprint has remained tight-lipped in the way of details, this should undoubtedly prove a win for U.S. wireless consumers.

So, where does Sprint's newly found financial flexibility come from?

Several places, actually. For starters, Sprint recently abandoned its attempted $32 billion merger with the nation's fourth-largest telecom company, T-Mobile, which gives it additional short-term financial flexibility that it originally hadn't expected. Beyond the scrapped T-Mobile deal, Sprint also expects to conclude the rollout of its Network Vision LTE network investment program as well, although many agree Sprint's network will still require some degree of ongoing investment over the long term. Combine these two factors with the willingness to lose money in the short term in order to gain customers, and Sprint could present a formidable challenger to AT&T and Verizon.

What this means for consumers
The tried-and-true maxim "when companies compete on price, consumers win" should certainly apply here for U.S. telecom subscribers.

Renewed competition has been one of the primary themes we've seen at work in the U.S. telecom space over the past 12 months or so. T-Mobile, under the outspoken leadership of Jon Legere, has aggressively attacked the likes of Verizon and especially AT&T with its Uncarrier campaigns. Now with Sprint apparently taking a similar tactic, the pricing competition should only increase.

We've already seen T-Mobile's tactics bear some fruit in terms of driving positive change for the consumer. In early 2013 T-Mobile officially introduced its Uncarrier plan, and ever since it has been a major agent of change across the industry. AT&T, Verizon, and Sprint have all responded in their own various ways over the past year or so, but the point that T-Mobile's boldly competitive action has driven down prices for consumers for at least some plans for U.S. wireless consumers is beyond question. T-Mobile appears poised to continue to push the envelope--just last month, it announced a still-cheaper update to its Uncarrier plan. And with Sprint entering the fray, expect competition to increase and prices to fall, all to the consumer's benefit.

Masayoshi Son

Masayoshi Son. Source: Softbank.

Sprint Chairman and CEO of its majority-owner Softbank Masayoshi Son is famous for this competitive drive. He built Softbank from a struggling Japanese telecom player into an industry power through a mix of aggressive pricing, savvy marketing, and customer service. Son recently installed Marcelo Claure as Sprint's CEO, another rags-to-riches billionaire who built his own business empire from nothing before selling it to Softbank. Under their combined guidance, expect Sprint to go on the offensive in short order.

So, while we'll have to wait to find out exactly what Sprint has up its sleeves in terms of its own price-cutting strategy, we've seen in the past that this kind of behavior means more savings for consumers. Take it to the bank: Change is coming to the U.S. wireless industry. And that's certainly cause for celebration for the average consumer.

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Andrew Tonner has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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