Analyzing Sprint’s Entry Into the Pre-Paid Mobile Space
Rita is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It’s the third largest US telecom giant Sprint (NYSE: S) that has been grabbing all the limelight of late. First of all, recently Japan’s Softbank acquired a controlling interest in the company. After the arrangement, both Sprint and Softbank started taking measures to rigorously improve US operations and entered into talks with Clearwire to acquire its remaining 50%, thus getting a hold on Clearwire’s 133 MHz of spectrum. And now there is another development in Sprint’s efforts to turn the wheel of fortune.
What’s Going On?
The telecom giant is going to launch its own pre-paid mobile services dubbed as “Sprint As You Go” according to Android Police. The website leaked a few images that look like advertisement from Sprint which hasn’t yet been made available on the company’s website. The Overland Park, Kansas-based company is planning to launch the pay as you go service on January 25 and as of now is going to provide two handsets only that will sport unlimited voice, text and web usage through a monthly plan costing $70.
The “Sprint As You Go” users will have the option to choose between two handsets: LG Optimus Elite and Samsung Victory. LG’s offering can be availed by paying $149.99 for the handset, while Samsung’s offering will cost $249.99, since it is LTE-equipped unlike the Optimus Elite. However, one noteworthy point here is that Sprint’s new service does not provide LTE plans and services currently, though the service may be available in the future. Again, apart from these handsets, the usual handsets that work on Sprint’s network will not get to use this prepaid service. Other than the smartphone plans, Sprint will also offer plans for feature phones which the users can have for a monthly cost of $50 by buying either Samsung M400 for $49.99 or Samsung Array for $79.99.
Analyzing the Move
Till now Sprint used to provide only post-paid plans and left the pre-paid service to its subsidiaries like Boost Mobile, Virgin Mobile and Republic Wireless among many others. These players used to provide the pre-paid service using Sprint’s network. And now, as Sprint enters the pre-paid mobile space, it will be in a direct line of competition with its subsidiaries, and this may have a bad effect on terms shared between Sprint and its partners. But again, a reason why its partners will not be alarmed about Sprint’s entry is that Sprint’s service is going to be costlier than what they charge. While Sprint will charge $150 for the Optimus Elite and the monthly unlimited plan will add another $70 to the cost, Virgin offers the same handset for $80 and offers an unlimited plan at $55 monthly, as brought to light by Android Police.
The only advantage that “Sprint As You Go” users will enjoy over the service provided by Boost or Virgin is that Sprint’s unlimited plan actually will offer unlimited data services at constant high speed, unlike the plans from the other two. The plans on Boost and Virgin provide unlimited data services; the speed gets compromised to 2G once the data usage hits the 2.5GB mark. In contrast, Sprint’s pay as you go service will offer 3G data speed all through. By introducing this service, Sprint aims to attract the contract-averse customers who are in need of high speed unlimited data service.
However, the advantage increases when we compare smartphone plans from other biggies in the space. While Sprint is going to charge $70 for unlimited calls, texts and data, AT&T (NYSE: T) charges $65 for unlimited calls and texts but data usage is limited to 1GB only. Here, users will have to pay just $5 more per month to enjoy unlimited data at high speed all through. But, in comparison to Verizon’s (NYSE: VZ) plan, Sprint users will be saving $10 and still get a better bargain since the nation’s largest telecom player offers unlimited calls and texts and only 2GB of data usage for $80.
Ever since Softbank acquired a controlling interest in Sprint; the telecom giant has been pushing itself to get a better grip on the US telecom market. Sprint is hunting for spectrum and new customers, and the move to enter the pre-paid market itself may have been spurred by Softbank’s aim to change the dynamics of the US telecom space. The move is an important one no doubt and will help the company battle the changing market forces once the T-Mobile and MetroPCS (NYSE: TMUS) deal is closed.
After the merger, T-PCS (T-Mobile + MetroPCS) will start targeting the prepaid market aggressively and Sprint needs to plan its defense and attack also. According to Fierce Wireless, “Flat-rate player MetroPCS has indicated it plans to use T-Mobile's network to expand its brand nationwide after the merger closes.” Even PC World feels “That the merger is expected to create a formidable competitor in the market for Sprint's prepaid business.”
Considering the possibilities, Sprint’s move to enter the segment seems to be a logical one. However, to what extent it will succeed is not certain. The problem the telecom giant is likely to face is a lot of users may choose to stay with Boost or Virgin only. The reason being, since these two players use Sprint’s network to provide the service, the quality of service that Sprint will provide will be the same. In such a situation, why will anyone pay almost double for handsets (and a lot more for the monthly plan) unless he or she needs high speed Internet all through? Sprint needs to expand its subscriber base hugely. But how much help this new service can bring in remains in the dark and can be known only with time.
analyse360degree has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!