Sprint Will Benefit From iDEN/LTE Conversion
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It is widely known that the Towering Trio of the wireless carrier world are AT&T (NYSE: T), Verizon (NYSE: VZ) and Sprint (NYSE: S). That is not to say that enthusiastic companies with smart ad campaigns such as T-Mobile – a subsidiary of Deutsche Telekom (DTEGY.PK) isn’t putting up a fight. T-Mobile is the 4th largest carrier in the U.S. and has a combined total of approximately 150 million subscribers.
Even so, the three leaders have had their fair share of struggles. Most notably, Sprint is trying to recoup from a particularly difficult first quarter. As it attempts to pick up the pieces, I see both AT&T and Verizon taking a more solid lead in the industry.
What Is Happening
Sprint had a rough day yesterday. It announced to the world an $863 million dollar loss while trying to calm fears and put a positive spin on things. Last quarter the company posted a loss of about 29 cents per share. The good news? It wasn’t as bad as last year. During the same period in 2011, the company posted a net loss of $439 million.
This is an example of how profit and revenue are not a good indication of the company's health. Sprint improved year-over-year revenue by about 7%, totaling $7.2 billion. With such numbers, one would expect slightly better news than, “we did better than last year”. It did, however, report an additional million subscribers during last quarter, making its total customer base about 56 million.
On the other hand, AT&T touted its achievements for the first quarter. It generated about $32 billion in revenue, representing a gain of $575 million, or 1.8 percent, compared to last year. It also reveled in its growth of 60 cents per share, beating the expected 57 cents per share. In terms of subscribers, the company boasted an additional 726,000 customers during the quarter, taking its total subscribers to about 104 million.
What about the iPhone Frenzy?
All three companies offer Apple’s (NASDAQ: AAPL) iPhone. Recently, Apple reported that its quarterly profit nearly doubled primarily due to iPhone shipments jumping 88% to new and emerging markets like China. In fact, sales of iPhones in China alone are almost five times greater than last year in the first quarter alone.
So the question on everyone’s mind is – with such a huge success for Apple, why aren’t the carriers cashing in?
For Sprint, about 1.5 million iPhones were activated during the first quarter. With that number, Sprint is still the smallest iPhone seller among the major carriers. AT&T yesterday revealed that it activated 4.3 million iPhones, and Verizon an additional 3 million.
One could say that attention is being put elsewhere. After all, Sprint is moving ahead with its bold decision to create its own 4G network. The company could not compete with the resources of AT&T or Verizon in the online auctioning of airwaves, especially after posting such heavy losses. To circumvent that, it plans to convert its Nextel iDEN push-to-talk infrastructure over to LTE 4G hardware and use the resulting vacant 800MHz wireless spectrum to fuel its 4G growth. Even so, other companies face obstacles and are still posting great numbers. AT&T, for instance is knee deep in union battles and litigation but still exceeded expectations.
That being said, it is no doubt that AT&T remains the leader in iPhone sales, both in number and in image. However, even with being the top seller of the worlds top phone, it still did not match the number of Verizon subscribers. This is because, with all three selling the same phone, he who promises most wins.
AT&T is still on the mend from its customer outcry over data throttling. What is the use of having the worlds greatest phone if your data will be slowed after going over a certain amount? Verizon’s strategy of a tiered plan has prevented any such broken promise in the eyes of the public. Thus, since the iPhone is no longer a hard-to-get exclusive device, consumers can get what they want from whom they want.
In addition, because customers are happy with Verizon, they are dancing with the one who brought them. Existing customers are purchasing iPhones with Verizon. Even though AT&T actually sold more iPhones last quarter, it added fewer new customers. These reasons could possibly explain why being the seller of the iPhone doesn’t automatically result in increased success and profit.
What Will Happen
T maintain growth and compensate for exponentially increasing network usage, AT&T and Verizon will fight over the airwaves that will be freed during the next auction. The advantage clearly goes to Verizon in that respect. AT&T is facing legal woes, possible disruption in manufacturing due to unions, and is also heavily behind Nokia’s new Lumia 900 phone.
Even in the face of a disappointing first quarter, I believe that Sprint’s decision will ultimately pay off. Forging ahead with one’s own network shows great vision and leadership. It also shows adaptability which is key to any company in the technology market. In addition, it is cost effective, saving the company millions in airwave purchase and potential loss from not offering a good 4G program like it’s competitors.
Summary
As smartphone sales continue to surpass tablets and PC’s, and usage is expected to grow by a factor of 16 over the next five years, all companies who can capitalize on this kind of growth stand to benefit, including Apple, Verizon, and Motorola. Verizon has an average price target of $39.55 and is trading at $37.75. AT&T has a dividend yield of 5.8% and has a 5-year dividend growth rate of 4.8%.
It is my prediction that Verizon will see the most significant growth in the coming quarters while AT&T will remain steady. That being said, Sprint still deserves a look. I believe it will benefit from its strategic move from iDEN to LTE.
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