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Sprint Gives Its Customers Another (Old) Way to Get a New Phone

By Chris Neiger – Mar 1, 2016 at 10:00AM

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Sprint's bringing back the two-year contracts it just killed.

Sprint (S) is looking for customer growth any way it can get it -- and if that means bringing back two-year service contracts, then so be it. 

After ditching two-year contracts less than two months ago, Sprint recently reintroduced the option to its customers -- and it's actually not a half-bad idea. 

Sure, the rest of the industry has spurned service contracts -- Verizon Communications (VZ 0.26%) and AT&T ditched contracts after T-Mobile (TMUS -0.85%) dropped them back in 2013. But here's what Sprint spokeswoman Michelle Leff Mermelstein told FierceWireless about switching back to them: "Sprint is the only carrier to offer the most choices to obtain a new device -- lease, installment bill, two-year contract or pay full retail price."

Sprint's trying for the best of both worlds
There's no denying that dropping service contracts has been a positive thing for the wireless carrier industry. T-Mobile's move away from them helped spur an onslaught of subscriber additions over the past two years, with the company adding more than 1 million net customers each quarter for the past 11 quarters. 

All of that growth hasn't come just because the carrier ditched contracts, but part of the carrier's lure has been providing upfront pricing for devices and services -- and customers have responded positively. 

Verizon has seen similar results. The carrier already has 40% of its customers on unsubsidized plans after ditching contracts back in August. The carrier still offers them for existing customers if they ask for them. 

But it's worth mentioning that Sprint isn't ditching leases, installment plans, or outright purchases of phones -- it's just offering contracts to those that want them. Sprint can stay competitive with its rivals by offering the same types of device plans, and yet offer up something that its competitors don't through the service contracts.

Sprint needs to keep all of its options open, because it's behind its rivals' customer numbers. T-Mobile overtook Sprint for the No. 3 spot just last year, and the carrier is trying to make up lost ground. 

Sprint's made some significant gains recently -- adding 501,000 net subscribers in fiscal Q3 2015 -- but it's still struggling to compete with the competition for LTE coverage and network speeds. 

The latest Open Signal data shows that T-Mobile tops all the carriers for LTE speeds (barely beating out Verizon), and the top three carriers nearly match each other for LTE coverage. Meanwhile, Sprint trails.

Keeping pace with the competition
It's too early to tell whether or not Sprint's contracts will really help the carrier, but I don't think investors should expect any significant spike in customer acquisitions from the move. After all, Sprint's offered contracts in the past, and the carrier still fell on some very hard times.

The real option here is for Sprint to market itself as the carrier that offers the most options to its customers. And that's no small thing. T-Mobile's done a fantastic job of selling that message (and backing it up), and Sprint could benefit from doing the same. But Sprint will ultimately have to couple its expanding customer options with a stellar network -- and right now that's the one option Sprint customers just don't have. 

Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Verizon Communications. 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.

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Sprint Stock Quote
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