After Verizon (NYSE:VZ) and AT&T(NYSE:T) touted shared-data plans earlier this month raising subscriber heckles about the future of unlimited plans, Sprint (NYSE:S) has been cashing in on the opportunity to promote its iPhone unlimited plans. It is also offering a $100 rebate to new subscribers if they trade-in their existing iPhone from a different carrier for a new two-year contract with Sprint. 
Verizon and AT&T have already stopped offering unlimited plans to new subscribers and the former is planning to do away with the grandfathered unlimited users as well. (see Verizon Looks To Substitute Unlimited Plans With Shared Data Plans For LTE) Both have plans to introduce shared data plans and the latter will be looking to follow in Verizon’s footsteps and do away with unlimited plans completely. (see AT&T Looks To Reduce Subsidy Pressures While Boosting Revenues Through Shared Data Plans) In such a scenario, Sprint will remain the only national carrier to offer truly unlimited plans (T-Mobile throttles 3G speeds after a certain limit), which it is using as a ploy to lure subscribers away from the two larger carriers. We have a price estimate of $4 for Sprint, about 50% ahead of the current market price.
Ample spectrum and iPhone’s promise
While unlimited plans may cause Sprint’s network to get clogged and slow up speeds for the consumers, Sprint’s high customer satisfaction ratings so far lead us to believe that its spectrum resources and infrastructure are not yet facing the same constraints as Verizon and AT&T’s. The iDen capacity that it is gradually freeing is being put to use to bolster its 3G capacity as well as to build out LTE. Sprint also has partner Clearwire’s spectrum to bank upon for LTE.
Sprint has therefore been able to use its unlimited plans as a selling point to bring in about 660,000 new subscribers last quarter, almost 44% of its total iPhone sales. This has also helped it show two consecutive quarters of strong postpaid net adds to its core Sprint network offsetting some of the huge losses being incurred on its iDen network which it is shutting down. It was also the least impacted by the seasonal slowdown in iPhone sales in the U.S. last quarter as it activated about 1.5 million iPhones during the quarter, just 16% lower than it did the previous quarter. AT&T and Verizon meanwhile saw sequential declines of 43% and 24% in iPhone sales respectively.
Saturated market and Sprint’s high debt levels
The saturation in wireless growth makes it important for Sprint to differentiate itself from rivals and use that difference to poach subscribers from its rivals. Sprint has traditionally portrayed itself as the torchbearer of unlimited plans and has even gone ahead and said that it plans to keep these plans for 4G LTE as well.
As subscribers increase, Sprint may eventually feel the effects of the burgeoning data growth on its network but it desperately needs to make its expensive iPhone bet work having made a huge upfront commitment of nearly $15.5 billion to Apple to buy a minimum number of iPhones over a four-year period. This was a massive bet considering that the company already has a highly leveraged balance sheet with about $26 billion in debt on its books compared to a market capitalization of only around $7.5 billion. While the iPhone subsidy puts its margins under pressure in the near-term, Sprint expects the higher data usage and the lower churn of postpaid contract-based subscribers to drive its ARPU levels higher in the long run.Notes: