Verizon Gets the iPhone, Should Sprint be Worried?

Sprint (NYSE:S) primarily competes with other major mobile operators like AT&T (NYSE:T) and Verizon (NYSE:VZ) in the mobile business. There were speculations as to whether Sprint will get Apple’s (NASDAQ:AAPL) iPhone or not, but given recent developments during the 2011 Consumer Electronics Show, it now appears to be a foregone conclusion. Looks like Apple wants to go with LTE technology for the long-term.

Clearly AT&T is going to feel some repercussions as a result of Apple’s decision, and the company is accordingly planning to mitigate the potential downside. We recently wrote an article assessing AT&T’s outlook into 2011 (Life After iPhone Exclusivity – The Outlook for AT&T).

But what about the other operators? How might Sprint, for example, be affected by Verizon’s move?

Outside of its lost opportunity of carrying the iPhone, Sprint actually has little to fear. Below we analyze this case.

Our price estimate for Sprint stands at $4.35, which is roughly in line with market price.

Sprint Has Already Withstood the Brunt of iPhone-Driven Customer Defection

When AT&T initially launched the iPhone, Sprint was already struggling with subscriber losses as many of its customers switched to AT&T or Verizon. A Spring customer keen on getting the iPhone would likely already have left Sprint to do so. As Sprint is now showing signs of improvement in several metrics including customer satisfaction, network performance and subscriber losses, it is difficult to imagine a large scale defection to Verizon driven by the iPhone.

Smartphone Push

Sprint has been steadily improving its selection of smartphones, which should help the company remain competitive with AT&T and Verizon. Sprint is now selling WiMax compatible smartphones with HTC EVO Shift 4G. A RIM’s WiMax compatible tablet will also be coming to Sprint’s network. ^[1] We’ve previously examined the upside to Sprint’s stock value should this strategic initiative pay off (45% Upside to Sprint if Smartphone Strategy Works).

Low-Cost Strategy

Sprint will continue to be competitive on price even when it comes to 4G plans. It is offering unlimited 4G data service for $69.99 per month. Its competitor Verizon charges more, while AT&T does not offer an unlimited data plan at all. ^[2]

Network Upgrade

Sprint is modernizing its network to permit the addition of LTE services in the future and migrate its iDEN subscriber base to CDMA network. The company also plans to decrease the number of its cell sites from around 66,000 to 46,000 in the U.S., leading to notable cost savings. We’ve previously analyzed the impact these cost savings could have on the company’s stock value (Sprint Investing in Network Modernization, Upside Potential to Stock).

With multiple strategies on tap to keep Sprint in a competitive position, we believe that any incremental subscriber losses stemming from Verizon’s iPhone launch will have a limited impact on the company’s value.

How do you think Sprint’s market share might be affected in the years ahead? Let us know your thoughts by providing feedback in the comment box below. You can also assess the impact of your forecast on Sprint’s stock value by dragging the trend line in the modifiable chart above.

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1. An iPhone for Sprint? Unlikely, but maybe a WebOS device from HP, computerworld.com, Jan 7 2011 [↩]
2. Sprint Plans Low-Price Strategy as Rivals Move to ‘4G’, Bloomberg, Jan 8 2011 [↩]