New Sprint (NYSE:S) CEO Marcelo Claure made a bold move when he announced that his company would offer Verizon (NYSE:VZ) and AT&T (NYSE:T) customers half-off their current monthly bill if they make the switch.
He further sweetened the deal by announcing that the pricing would stay in effect as long as the new customer stayed on the same rate plan. Basically, Claure offered defectors from the two biggest wireless carriers not only lower prices in the short term, but a guarantee to not raise rates. The half-off deal is notable not just for how aggressive a move it is, but for the major carrier not included in the deal.
By only offering half-off to Verizon and AT&T users, Claure made it clear that he's not looking to win customers from T-Mobile (NASDAQ:TMUS) but he is looking to stop people from leaving AT&T and Verizon and joining the "Un-carrier." That shows that while Sprint has faltered in recent years, its new boss is not going to roll over and allow T-Mobile's brash CEO John Legere to achieve his stated goal of moving ahead of Sprint to become the No. 3 wireless carrier.
Sprint still has significant hurdles to overcome, but Claure has at least put his company back into the fight. Whether he can steer some of the people leaving AT&T and Verizon to his company over Legere's may well come down to whether he can deliver an acceptable mix of price and network quality.
It's all about the Benjamins
Sprint's deal is not quite as straightforward as just saying "half-off" implies. As part of the agreement the company requires switching customers to either buy a phone outright, finance one through its "Easy Pay" offering, or, in the case of the iPhone 6 only, lease it through iPhone for Life. That means the Sprint offer is not exactly half off to any Verizon or AT&T customer who got his or her phone through a subsidized contract plan. Even Sprint CFO Joe Euteneuer, speaking in early December at a Merrill Lynch conference, admitted that the actual saving would not be half.
"They are still probably getting a 20% sort of net discount," he explained, Consumerist reported.
Still, since all carriers normally charge roughly the same price for all the major phones, the key savings between any two plans with nonsubsidized phones is service plan costs. Price, of course, varies based on the size of your family, but as a baseline, let's use a family of four with a 10GB data plan. We can also assume that the family contains two adults using premium smartphones purchased for a $199 subsidized price with two junior users making do with mid-range devices purchased for a $99 up-front fee on the subsidized AT&T and Verizon plans. For the purpose of comparing overall value we will add up those subsidized phone up-front charges and split the $596 over two years (even though it must be paid up front). For the purpose of the nonsubsidized plans, we will assume two Apple (NASDAQ:AAPL) iPhone 6s at $27.08 each a month and two lower-priced phones costing $14.50 monthly.
|Carrier||# of lines||10 GB Shared Plan Cost||Phone Cost||Monthly Total|
|Sprint from AT&T||4||$130||$83.16||$210.16|
|Sprint from Verizon||4||$120||$83.16||$220.16|
As you can see, the actual costs paid by AT&T and Verizon users switching to Sprint are well above half and it would actually be cheaper for Verizon users in this example to switch to T-Mobile without any special promotion. Overall, it should be noted that the Sprint deal is similar to the T-Mobile regular offering and AT&T and Verizon offer lower prices (but still higher than Sprint's deal and T-Mobile regularly) for customers who pay full price up-front or lease phones.
Sprint users could save roughly $15 a month by leasing their iPhones, but would likely lose more than that in resale or trade-in value at the end of two years.
Leaving Verizon or AT&T for Sprint or T-Mobile does mean a downgrade in network quality. Verizon was the clear winner -- and Sprint the clear loser -- in RootMetrics' survey of the four major wireless networks for the first half of 2014. Verizon received top marks in reliability, speeds, data performance, and call performance while AT&T took second in all of those. AT&T was on top with Verizon second for text performance. Sprint had the lowest overall score with it and T-Mobile ranked third or fourth in all the individual categories.
What is the choice?
As a pure cost play, Sprint's half-off offer is a deal for AT&T and Verizon customers though not quite as good a deal as advertised and T-Mobile offers similar, and in some cases better, pricing, without the hassle of having to produce a bill. T-Mobile has a stronger network, but it's close enough as you can see from the chart above that it's not likely to be a factor.
With the half-off deal, Sprint and T-Mobile are similar value propositions and it's worth it for potential customers to factor in network strength where they will primarily use the phone. They should also consider whether they prefer T-Mobile's offer of less high-speed data per line, but no overages to Sprint's higher-data deal without cost certainty.
Claure put Sprint back in the game, but T-Mobile has been there longer and offers similar pricing and a slightly better network at its regular, non-discounted price. Sprint has a good offer here, but it's not better than T-Mobile's normal deal.
Daniel Kline owns shares of Apple. He is a Sprint customer. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. 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.