Improving Economic Outlook, Smartphone Technology Can Lift Sprint Mobile Plan Pricing

The average  monthly subscription fee paid by Sprint’s (NYSE:S) mobile subscribers has declined consistently over the years, from about $57 in 2005 to around $34 in 2009, following a trend of industry-wide declines in postpaid voice revenues per subscriber caused by increasing competition and declining costs in the saturated wireless industry. Sprint competes with AT&T (NYSE:T), and Verizon (NYSE:VZ) in the postpaid mobile market.

We believe the introduction of newer and better smartphones in an improving economy could incentivize subscribers to upgrade to unlimited plans.

While we expect postpaid plan pricing per subscriber to stabilize around $33 over our forecast period, the Trefis community predicts an increase towards $43, suggesting and upside of roughly 33% to the Trefis price estimate for Sprint stock.

We currently have a price estimate of $4.35 for Sprint Nextel’s stock, roughly in line with market price.

Intense Competition and Declining Costs Will Pressure Mobile Plan Pricing

Apart from the three big players (Verizon, AT&T and Sprint) with a US presence, there are a number of smaller players like T-Mobile, Virgin, Cricket, and Qwest. As the market saturates, service providers will continue to offer discounts and promotions (such as free minutes, roll-over minutes, and free calls to other subscribers), which will put pressure on average revenue per user (ARPU).

The US wireless industry has witnessed very high growth rates over the last few years. With improving technology and reach over the past decade, costs have correspondingly declined.

Improving Economy and Smartphones Technology Can Bolster Pricing

As the economy improves, the number of customers shifting to lower priced plans may decelerate. The growing popularity of smartphones (coupled with an improving economy) is  likely to act as an additional incentive for subscribers to upgrade to unlimited plans to fully exploit the capabilities of their smartphones.

Trefis Community Forecast

The Trefis community predicts that Sprint’s monthly mobile subscriber plan pricing will increase from 2009 levels of roughly $36 to $43 by the end of our forecast period, compared to the baseline Trefis estimate of a decrease to about $33 during the same period. The member estimates imply a 33% upside to the Trefis price estimate for Sprint Nextel’s stock, which is currently in line with market price.

See our full company breakdown and estimates for key drivers to Sprint’s stock value in the display below.

Our complete analysis for Sprint Nextel’s stock is here.