What Does the iPhone Mean to Sprint?
Rajesh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The launch of Apple’s (NASDAQ: AAPL) next generation iPhone 5 is one of the much awaited events this fall. Talks about the event, which is expected next month, has not been verified yet. But a number of sources are confirming the event to take place on September 9, when the Cupertino tech giant could unveil the release of its other products such as the iOS 6, the much talked about iPad Mini, the new iMac as well as the Mac Pro.
Buyers willing to get their hands on a new iPhone are restricting their purchase at the moment in anticipation of buying the new one. This is having an impact on the sale of the 4S devices. So in order to boost the sale of iPhone 4S devices and clearing the inventory, Sprint (NYSE: S) has decided to offer it at a discount of $50. That looks like a decent deal as it brings down the cost of the devices to $149 on a two-year contract. However, Sprint says that the price cut is part of its promotional strategy. But is it actually so? Let’s dig out a little more.
Digging Deeper
A blessing to the carriers
Though Google’s (NASDAQ: GOOG) Android is giving Apple a tough run, still the obsession of possessing an iPhone remains strong. Even carriers are getting addicted and waiting for the release of the next one. What’s the reason? A pretty predictable one; revenue from the iPhone sale is pouring money into their tanks and raising the carriers’ Average Revenue per User (ARPU). The smartphone revolution that came with this device converted phone users into data hogs. All this is increasing the revenue flow for the companies. People are ready to have one even at a premium and the iPhone mania looks unbeatable.
The rescuer
Sprint has been experiencing hard times for quite long now. The acquisition of Nextel didn’t work out in favor of the company. Next, its attempt of getting access to additional spectrum for 4G deployment and entering into a deal with Clearwire is also struggling.
Amidst all this, the iPhone came as a savior to its drowning ship. The company’s quarter results weren’t great, but there was something essential to note. The iPhone is playing an essential driver to the carrier’s postpaid revenue quarter by quarter. In fact, it accounted for a net addition of 600,000 subscribers in the recent quarter. This has not only made the company grow a little stronger, but has also improved its market share in the iPhone sales. On the contrary, its bigger rivals Verizon (NYSE: VZ) and AT&T (NYSE: T) witnessed a sequential dip of 14 percent and 16 percent respectively in their iPhone sales.
What more now? The $50 discount on iPhone 4S could actually lure customers to buy the device from Sprint rather than Verizon and AT&T who charge $199 for the device. Also, Sprint doesn’t charge for activation in case of an online purchase. Finally, what’s most important is that the carrier provides and unlimited data plan at $80 compared to Verizon’s $100 and AT&T’s $90.
Despite all this, is Sprint welcoming the next gen iPhone wholeheartedly?
Sprint: the laggard
The biggies are all set with their 4G LTE networks to welcome Apple’s next iPhone. However, Sprint is still in the process of building the LTE, though it expects the major deployment to complete by the end of 2013. Verizon’s LTE network is spread across 230 million Americans while AT&T covers around 80 million people in the nation. Sprint, on the other hand, recently launched its LTE which is currently spread in just 15 markets. Unless 4G LTE is built, users will not be able to experience the speed and features that the iPhone 5 offers. That’s a problem for Sprint.
So what’s in store for the carrier depends on what the customers want. Do they want 4G LTE speed and to convert to Verizon’s and AT&T’s costlier plans, or stick to Sprint’s truly unlimited data plans at a compromised 3G speed. The threat that the carrier faces is of losing customers to the larger players that provide a faster network.
Concluding thoughts
Though there are network speed difficulties of choosing Sprint in the initial phase, however buyers shouldn’t ignore the fact that Sprint plans to continue with its unlimited plans for the LTE network as well. At the same time, Sprint should bear in mind that the iPhone maker is just a rescuer, and if the carrier actually wants to compete with the telecom majors, it needs to do much more.
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