With the iPhone 5 launched, Sprint (NYSE:S) seems to be racing to catch up with AT&T and Verizon in laying out a high-speed 4G LTE network.  The third largest U.S. wireless carrier announced Monday that it has expanded its LTE coverage to a total of 32 metropolitan cities, and expects to add another 115 in the coming months. In comparison, Verizon’s (NYSE:VZ) LTE network currently covers more than 250 million Americans in close to 420 markets across the U.S. AT&T’s (NYSE:T) lead over Sprint is not as wide, but it still offers LTE in as many as 77 U.S. markets to over 80 million Americans currently, and plans to almost double that reach by the year-end.
Network Vision will help Sprint catch up
- Can Sprint’s Recent Margin Expansion Continue?
- How Did The Prepaid And Wholesale Businesses Of U.S. Carriers Fare During Q2?
- Sprint Rallies 27% On Q1 Subscriber Gains, Did The Markets Overreact?
- Sprint Earnings Preview: Cost Management, Prepaid Business In Focus
- How Did U.S. Wireless Stocks React To Brexit?
- Explaining The Recent Sprint Rally
In order to bridge the gap, Sprint is aggressively executing on what it calls its Network Vision strategy to get most of its LTE network ready by the end of 2013. The carrier is trying to phase out iDen gradually and consolidate its network holdings into one 2G/3G/4G network using a combination of CDMA and EV-DO. In fact, Sprint has announced that it is planning to shut down the iDEN network completely by next summer. The freed up iDEN spectrum will then be used to boost its LTE network in 2014. (see Sprint To Build LTE Over iDEN’s Grave)
The announcement of iDEN’s impending shutdown in about a year’s time will however cause the remaining iDEN subscribers to jump ship, and may deepen the market share loss in the short term if Sprint is unable to transfer enough of them to its CDMA network. However, the iPhone’s addition has helped the company report three strong quarters of postpaid net adds on its core Sprint CDMA network since the 4S launch. (see Sprint’s Earnings Show Strong iPhone-Led Turnaround But Risks Remain) We expect CDMA’s strong showing to continue and help Sprint stem the overall postpaid losses in due course of time as iDEN is gradually phased out.
LTE disadvantage is only near term
Overall, we believe Sprint’s LTE disadvantage will most likely be only a near-term one as the company has been able to execute on its Network Vision plans well so far. Moreover, LTE adoption has been sluggish as the technology is yet to be widely adopted. Verizon, despite its huge lead over the rest, has managed to convert only about 16.5% of its postpaid subscriber base to LTE so far. We expect LTE adoption to pick up with the recent launch of the iPhone 5, and strengthen in 2013. So, longer term, Sprint may not miss out by a lot as long as it continues to deliver on its current roll-out plans.
There is also a case to be made in favor of Sprint’s unlimited plans, which it has marketed well to differentiate itself from the two larger carriers. It has also worked in Sprint’s favor that while it has steadfastly stood behind its unlimited plans for LTE, rivals Verizon and AT&T are only distancing themselves from unlimited plans further. Both stopped offering unlimited plans to new subscribers a year ago, and now Verizon has stopped its grandfathered unlimited users from availing handset subsidies if they choose to keep their plans. (see Verizon’s Share Everything Plans Could Kill The Last Unlimited Plans)
It is likely that AT&T, having made clear its displeasure with unlimited plans on many occasions, will also come up with similar ways of discouraging usage of unlimited plans as it follows in Verizon’s footsteps and promotes its own tiered data share plans. (see AT&T Looks To Reduce Subsidy Pressures While Boosting Revenues Through Shared Data Plans)
As more people use LTE, we expect many to find unlimited plans more valuable for LTE than they were for 3G since LTE is a higher-speed technology and can easily make subscribers overshoot their monthly quota for tiered plans. In such a scenario, customers might find sticking with Sprint more beneficial in the long term, especially as the carrier ramps its LTE rollout to catch up with Verizon by the end of next year. As LTE adoption rates rise and the iPhone brings in the highly lucrative postpaid subscribers, Sprint will also see its data ARPU levels rise in concert. Sprint’s postpaid ARPU in the third quarter jumped $4, or 7% versus the same period last year, as the iPhone accounted for a huge number of new subscribers to Sprint.Notes: