As a sector, telecom stocks are often known as defensive utility plays. Stalwarts like and AT&T and Verizon have been solid investments in recent years, rewarding shareholders with billions of dollars in buybacks and dividends. But there are other, more speculative firms operating in the industry. T-Mobile (NASDAQ:TMUS) and Sprint (NYSE:S) are two such companies -- fairly speculative, but with greater upside potential. They may not be the greatest investments, but they're definitely worth watching.

T-Mobile's Un-carrier initiative has been a massive success
T-Mobile shares have more than doubled since they began trading publicly in May, 2013. The gain appears to be almost entirely the byproduct of its aggressive "Un-carrier" initiatives, which have helped it add millions of subscribers over the last two years. In the first quarter, T-Mobile added 1.1 million new post-paid subscribers, more than both AT&T and Verizon combined, and it expects to add 3 million to 3.5 million in total by the end of 2015.

To date, T-Mobile's Un-carrier initiatives have centered around removing various pain points in the telecom industry at large. T-Mobile has done away with two-year contracts, allowed customers to upgrade early, pushed for Wi-Fi calling, and offered rollover data. On Thursday, it unveiled a new leasing program that makes it easier and less expensive for subscribers to get new handsets more often. For $15 per month, T-Mobile subscribers can effectively rent Apple's iPhone 6 with no money down, and exchange it for a new phone up to three times a year.

Unfortunately, T-Mobile isn't profitable -- it lost $0.09 per share last quarter. But management expects the company to make money in all of the year's remaining quarters, and for 2015 overall. If T-Mobile can continue to grow and expand its network, it may be able to achieve Verizon or AT&T levels of profitability some day, but certainly not in the immediate future.

T-Mobile's shares have also been unduly volatile, largely because much of the case for investing in the company still hinges around the lingering belief that it will be sold. It's no secret that Deutsche Telekom, which still owns about 70% of T-Mobile, wants to sell the company -- if it weren't for the Justice Department, it would've sold it to AT&T in 2011. Sprint reportedly had plans to purchase the company, but abandoned them last year. Dish Network remains an intriguing possibility, but there's no guarantee a merger will happen.

Sprint's troubled turnaround

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Photo: Sprint

 

There are many similarities between T-Mobile and Sprint. Both are majority owned by foreign corporations (in Sprint's case, Japan's SoftBank). Both are far smaller than their mammoth competitors (Verizon and AT&T). And both are unprofitable (Sprint lost $0.06 per share last quarter). But there also several key differences. 

Sprint is not seeing the same growth as T-Mobile. Last quarter, Sprint added just 211,000 postpaid subscribers. That's up significantly from the 231,000 it lost in the same quarter last year, but it lags all three of its major rivals. Admittedly, its new CEO, Marcelo Claure, took control of the company less than a year ago. His plans to turn Sprint around have barely had time to settle. But investors haven't been willing to show much patience -- Sprint shares have shed more than 36% since Claure was named CEO last August.

Still, it may not be worth writing Sprint off completely. SoftBank's Chairman, Masayoshi Son, is among the most brilliant business leaders operating in the telecom space today, with an unparalleled track record and deep pockets. And though its actual network is worse than those of its competitors, Sprint has a massive amount of spectrum, more than any other wireless carrier. Sprint will need to continue adding subscribers and investing in its network, but a turnaround is possible.

Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Apple and Verizon Communications. 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.