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Sprint Takes Another Step Back While Its Peers Take 2 Steps Forward

Sprint's (NYSE: S  ) failed acquisition of T-Mobile has some rather drastic implications: The company must now keep its tarnished name, its network won't get the boost provided with extra spectrum, and the company is left looking up as high as ever at peers AT&T (NYSE: T  ) , Verizon (NYSE: VZ  ) , and even T-Mobile. As if it couldn't get worse, it now appears that Sprint is far behind a movement that could redefine the telecom industry, and Sprint is showing no sense of urgency whatsoever to act.

What's this movement?
Last week, Verizon Wireless CFO Fran Shammo announced that the company will launch a voice-over LTE service by the fourth quarter of this year. Afterwards, the company will produce various products based on this service.

Verizon's announcement follows similar action by peers AT&T and T-Mobile, both of which have already begun to roll-out voice-over LTE phones, with the former primarily in the Midwest. Sprint has not given a timetable on voice-over LTE, with the company's network chief saying that Sprint "isn't rushing" to deploy the service. 

Notably, Sprint's 3G network covers 277 million of the 316 million total consumers that Sprint is capable of covering, meaning it would cost the company billions to build and roll out an efficient LTE network. Not to mention, it would be a lengthy process.

What are the benefits?
Most consumers are aware of the terms 3G and 4G LTE, as it refers to the network that a device uses, with the latter being significantly faster and more powerful.

Up until now, voice, and often text, have run on different networks, known as GSM and CDMA. For the most part, these networks are similar, both of which require broad infrastructure, with the only major difference being that GSM customers have their information stored on SIM cards. Hence, AT&T and T-Mobile both use GSM voice networks. 

With that said, telecom companies spend 10s of billions annually on capital expenditures to constantly upgrade and improve all three networks: 3G, LTE, and also GSM or CDMA. However, with LTE having the greatest capabilities in terms of power, why not invest all resources into one network if consolidation of services is possible?

For Verizon, T-Mobile, and AT&T this logic apparently makes sense. Theoretically, these companies could then use the majority of their spectrum and capital expenditure budgets to ensure that LTE networks are top-notch, reliable, and have great reach throughout the country.

For consumers, this consolidation to LTE would obviously mean better coverage throughout the country, improved services like high-definition videos, and more sensible and less confusing service packages with carriers.

The business advantage
Not to mention, voice-over LTE can also boost the business of telecom companies, as Verizon recently noted that only 55% of its customers use LTE devices, but they account for nearly 80% of its total wireless data traffic. In other words, customers using LTE tend to use their devices more often, which could mean higher revenues per user for the telecom company, assuming the trend continues.

With all things considered, voice-over LTE sounds like a marvelous idea, yet Sprint is in no rush. Obviously, its enormous debt position, lack of profitability, and money spent to build its 3G network all play a large role in this decision, but in an industry that's always looking far into the future, it can't be a good sign that Sprint is the only company lacking a sense of urgency to follow this trend.

Foolish final thoughts
Sprint seems content on giving users more of what it currently has rather than making the investments that are necessary to keep up with its competitors. The company's latest move involved doubling the amount of data it offers on shared family plans while keeping costs the same. 

While this is a good move, Sprint's LTE network is still underdeveloped, and sometime in the near future, its competitors will be running all of their services through LTE to provide customers with the fastest possible experience, putting Sprint at a considerable disadvantage.

Sprint's unwillingness to act, show any real timetable on the LTE rollout, or invest more significantly in expanding its LTE network further illustrates a company that continues to take steps back while its competitors take giant leaps forward.

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Comments from our Foolish Readers

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  • Report this Comment On August 24, 2014, at 7:16 PM, BigApple wrote:

    Yeah, VOIP is great for ATT and VZ. I believe hey are taking unlimited calling (which you pay for as part of your service plan) and putting it on the data stream. Will this count against your data cap? Probably... If so then ATT and VZ are double-dipping into your wallet.

  • Report this Comment On August 26, 2014, at 5:50 AM, vertebra wrote:

    One only has to remember how fast Verizon's network was when it first rolled out compared to today. Putting voice calls on the LTE band sounds good in theory, until those bands get congested. Masayoshi Son has barely had any time to make any real changes. What Sprint needs to do is start training its customer service and make it's phone and data plans more consumer friendly.

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Brian Nichols

Brian Nichols is the author of "5 Simple Steps to Find the Next Top-Performing Stock: How to Identify Investments that Can Double Quickly for Personal Success (2014)" and "Taking Charge With Value Investing (McGraw-Hill, 2013)". Brian is a value investor, but emphasizes psychology in his analysis. Brian studied psychology in undergrad, and uses his experience to find illogical value in the market. Brian covers technology and consumer goods for Motley Fool. Brian also updates all of his new and current positions in his Motley Fool CAPs page. Follow Brian on Twitter and like his page on Facebook for investment conversations and recent stories.

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