Source: Sprint.
Is Sprint (S +0.00%) CEO Marcelo Claure becoming the next John Legere? For the uninitiated, Legere is the brash CEO of T-Mobile US (TMUS 0.06%) who's inspired a cult following for his "Un-carrier" initiatives and consumer-friendly practices. And in the process, Legere has shaken establishment legacy carriers AT&T (T 0.77%), Verizon (VZ 0.48%), as well as the aforementioned Sprint.
Legere famously declared that T-Mobile will overtake Sprint's subscriber count in 2014. And while it appears the company may fall short of that lofty goal, if the overall dynamics don't change T-Mobile will overtake Sprint soon. For perspective, according to research firm Strategy Analytics, Sprint currently boasts 54.7 million subscribers; T-Mobile has 52.9 million. However, in the recently reported third calendar quarter, T-Mobile added 2.3 million subscribers, whereas Sprint added a paltry 48,000 subscribers, mostly as a result of wholesale and affiliate subscribers.
Marcelo Claure, in a clear departure from his predecessor, Dan Hesse, appears determined to follow in Legere's footprint of aggressively attacking rivals with large, splashy promotions. And while on the surface the company's newest promotion appears to be a deal, the numbers don't particularly bear that out.
Sprint will cut your bill in half, but you may pay more per month ...
Sprint announced its "Cut Your Bill in Half" event. Starting on Friday, Dec. 5, Verizon and AT&T subscribers can switch to Sprint for a plan with unlimited talk and text and the same data plan at half the cost they are currently paying. And to sweeten the deal, Sprint is reimbursing up to $350 per line for early termination fees or installment plan balances, and the company is waiving the standard activation fee of $36 as well.
The company's example gives insight into the potential cost savings: "For example, a Verizon customer paying $140 per month for 4 lines + 10GB of data can get 4 lines + 10GB of data on Sprint for $70 per month." But as always, there's a catch: This promotion offers nothing in terms of device discounts. Returning to the example, if you'd like to add four Apple iPhone 6 16GB units on the 24 easy pay plan you can expect your monthly bill to be an additional $108.36, or nearly $40 ($38.36 to be exact) more than Verizon's monthly cost.
Of course, it's entirely prudent to mention that Verizon's device subsidies don't cover the entire cost of the phone, making a pure monthly comparison between a subsidized plan and one without meaningless. The iPhone 6 on a Verizon plan is $199.99. For four phones, the overall cost is $799.96 upfront. The breakeven is rather simple in this specific example: $799.96 initial cost with the Verizon example, versus $38.36 more per month with Sprint; the breakeven swings to Sprint's presenting a better deal around the 21st month -- a better deal, but not as good as initially marketed.
Sprint is emulating T-Mobile in more than aggressive marketing, but still requires a contract
For wireless providers, the device subsidy can be thought of as the carrot to induce subscribers into a multiple-year contract: the stick. And that's generally an expensive carrot; in the iPhone example Verizon's subsidy is the equivalent of $450. Over time, profitability demands from insatiable investors -- as a Verizon investor, myself included -- dictate wireless providers to increase profit by increasing wireless rates, saving money by eliminating subsidies, or both.
T-Mobile famously scrapped subsidies in 2013 and has done well in the wake of that decision. T-Mobile scrapped contracts with its "Un-carrier" initiatives because the company no longer needed to recoup the cost of the device. Because it's not being burdened by a device subsidy, the company is able to quickly and nimbly offer promotions tailored to grow subscribers.
And if this promotion is any indication, Sprint is looking to wean subscribers off device subsidies. At an investor conference in early November, Claure mentioned that the company may drop subsidies next year. However, it appears the company is still looking for subscribers to sign long-term contracts. And for would-be subscribers, that's a plan that's heavy on sticks and short on carrots.
