Is This Company Back on Track?
Rajesh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The arrival of Apple’s (NASDAQ: AAPL) newest iPhone version, the hottest happening in the tech space, is impacting the US telecom industry in different ways. The third largest US carrier Sprint (NYSE: S) announced that it successfully sold 1 million LTE enabled smartphones despite much smaller network coverage compared to its larger rivals. The credit for this incredible figure in such a short timeframe goes to HTC Evo and the Galaxy S III phone from Samsung Electronics which accounts for 90 percent of the sales number. Apple’s iPhone 5 which received over 2 million pre-orders in the first 24 hours does not form part of the 1 million units reported by Sprint. However the telecom provider has great expectations from this marvelous masterpiece. CEO Dan Hesse’s expression - ‘I'm just very glad we have it’- says it all.
Warm welcome for the masterpiece
Hesse expressed his excitement regarding the launch of the iPhone at the Goldman Sachs Technology Conference in New York, but preferred to remain quiet on the pre-order numbers or compare it with fellow players. According to recent report, 23 iPhone 5s are being sold per second. Though Sprint hasn’t revealed any figures, its prospects are pretty decent as it expects strong sales of this device. In contrast, larger foe AT&T (NYSE: T) was more vocal about the matter and said that the iPhone is ‘selling very, very well’ and that the carrier’s 4G wireless network deployment is running in full force.
When Sprint first announced its deal with the Cupertino company, many were skeptical about it and believed it to be the next Nextel. However, the carrier replied with strong performance by beating analyst estimates on its iPhone sales in the most recent quarter. Moreover, despite the huge subsidy that it has to bear on the smartphone, the company’s operating income grew stronger.
Even Verizon (NYSE: VZ) is offering the iPhone 5 and Sprint considers that the top carrier possesses a great competitive advantage given its huge LTE network coverage. However, Sprint doesn’t want to lag behind in this area and is therefore working hard to upgrade its network.
LTE roll out to narrow the gap
Sprint is in the process of rolling out the LTE network under its ‘Network Vision’ Plan. This high speed technology will help the wireless provider to benefit from the rising demand for LTE enabled devices. The iPhone 5 which has enormous demand supports this next gen technology. Sprint’s coverage at the moment is much lesser compared to the top two, but the carrier is presently banking on its unlimited data plans which is a differentiating point between the company and its bigger foes.
Also, the carrier’s effort in selling 1 million LTE devices should be appreciated especially as it recently launched its LTE network in July and that too in a handful of markets. At the same time, it is working towards the deployment of its LTE network. It expects to cover around 123 million POPs by the end of this year and plans to cover 100 cities by next year. On the other hand, the lead US carrier Verizon already covers about 233 million POPs which comes to 75 percent of the US population and proposes to hit 260 million people by year end. The next largest carrier AT&T covers 75 million people that it plans to extend to 150 million by year end.
Though the bigger players might look mightier in terms of the coverage, Sprint’s data plans are more attractive and workable for customers. The demand for LTE devices is increasing and carriers are expected to gain from it. Sprint would benefit from it more once its coverage improves.
Other than this, the carrier also appears to be working on some consolidation plans in the future to get more competitive and combat Verizon’s and AT&T’s rivalry.
Big Deals to get bigger
The telecom industry is witnessing a number of mergers and acquisitions to benefit from the synergies of consolidation and survive in the extremely competitive environment. Amidst all this, Hesse has thrown hints that the company might take a look at consolidating with some player to get bigger and take on Verizon and AT&T. He said that the company is going to play some ‘active’ role in ‘some kind of deal between wireless carriers’. There are two kinds of deals that Sprint could consider. One could be a big deal primarily to become bigger in size and get closer to the top two telecom players, the other could be to consolidate with a smaller player and benefit from cost cutting and other synergies.
The company could consider buying regional carrier MetroPCS which is a perfectly sized company, fit for Sprint’s pocket. At this point of time when Sprint is in the process of building the LTE network, it wouldn’t be prudent for the company to enter into some extravagant deal that could divert its attention from the LTE deployment. Hesse reaffirms that the company’s primary focus is the execution of its Network Vision by the middle of next year and then it would actively work on consolidation programs.
There were plenty who were unsure and skeptical about Sprint’s comeback. But the company seems to have fared well to all those who had faith in it. It’s working towards building its network to come back on track. It will be interesting to see how the company performs in the next few quarters. Will it win the lost confidence of its investors?
Compare and Contrast
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