The U.S. wireless industry is a highly competitive space with frequent price cuts, but every once in a while, a carrier makes a sane pricing decision to help the longevity of its business -- and last week that decision came from Sprint (NYSE:S).
The nation's fourth largest carrier announced that it's raising the price of its unlimited talk, text, and data plans from $60 per month to $70. The price increase is for new customers who enroll in the unlimited plan after Oct. 15. Current unlimited-plan customers can keep the same plan at the lower price.
Sprint already charges $20 less per month than T-Mobile's unlimited plan, and Verizon and AT&T don't even offer unlimited plans. Even after the price increase, Sprint will still offer the cheapest unlimited plan by far.
"At Sprint, we give customers what they want -- and they want the option of unlimited data," Sprint CEO Marcelo Claure said. "At $70 a month, Sprint still beats the competition. Rather than increase the price without warning, we want to give customers one last chance to take advantage of the $60 rate."
Sprint's unlimited-plan price bump isn't about strategically raising prices to better match its competitors, but rather about digging itself out of a financial hole.
Sprint needs more money
Last month, Sprint reported its fiscal first-quarter 2016 earnings, and total revenue fell by 9% year over year, while revenue from its wireless phone business was down 8% over the same period. Most of that drop came from the massive amount of customers leaving the carrier, and while the mass exodus is starting to subside, it doesn't mean Sprint is doing well.
In fiscal Q1 2016, the carrier lost 12,000 of the lucrative postpaid phone subscribers, while its closest competitor -- T-Mobile -- gained 76,000 postpaid phone subscribers in its most recent quarter.
If anyone has been questioning Sprint's precarious financial position, the carrier cleared things up recently when it announced it will cut up to $2.5 billion in expenses over the next six months. Unfortunately for its employees, that will mean job cuts as well.
Will the price increase help?
First off, raising the unlimited-plan pricing is a good thing. The carrier should be able to do it without angering current customers, because the price won't go up for them, and it will still be $10 cheaper per month than T-Mobile's closest plan. So once the pricing increases, Sprint will be able to make more money from its new unlimited subscribers yet still be able to promote the plan as the cheapest unlimited option. (NYSE:T)
Second, the increase marks a much more long-term growth strategy for Sprint compared with some of its previous moves. When the carrier launched its campaign to cut AT&T and Verizon customers' bills in half if they switch to Sprint, it ended up costing the carrier about $914 million in its fiscal fourth quarter. Of course, it helped Sprint add about 1.2 million subscribers, but it came at a steep price.
Now, with a slightly more stable customer base, the carrier can focus its attention on bringing in more revenue from the unlimited plan, and focus less on offering insanely low deals just to get people in the door. We won't know how well this will pay off for several quarters, but when paired with Sprint's recent announcement to cut billions in spending, it's certainly a step in the right direction.
Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Verizon Communications. 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.