Is Sprint Going Too Far To Win Over Subscribers With Free Service?

by Trefis Team
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Sprint (NYSE:S) is running one of its most aggressive promotional plans we’ve seen thus far in the U.S. wireless market, offering Verizon subscribers who switch to its network a full free year of unlimited voice and data service for up to five lines. While the limited-time promotion could help the carrier bolster its postpaid phone subscriber figures, bringing in customers from Verizon – which has among the highest-value users in the industry (low churn, high ARPU), it does come with multiple risks as well. In this note, we take a look at what the plan could mean for Sprint.

We have a $8 price estimate for Sprint, which is roughly in line with the current market price.

See our complete analysis for  Verizon | AT&T |T-MobileSprint 

Solid Offering With Very Limited Fine Print

The promotion, which Sprint has titled “Stop feeling ripped off by Verizon,” runs through the end of June and offers unlimited voice, text messaging and 4G LTE data with 10 GB of  hot spot per line access each month. The plan doesn’t appear to have much fine print, with Sprint essentially requiring users to bring an unlocked phone, while making a small monthly payment towards administrative fees (~$2.4o per month) and signing up for auto pay and electronic billing. After July 31, 2018, the prices will revert to Sprint’s regular monthly rate of $60 for one line, $40 for a second line and $30 for each additional line. Interestingly, customers do not have to commit to a contract with Sprint, meaning that they can leave the carrier after receiving a free year of wireless service. While this does pose a risk to Sprint, its data plans are the cheapest in the industry, meaning that customers would have to pay more if they decided to shift carriers after a year. Moreover, Sprint’s network performance has been improving, particularly in urban and suburban areas, potentially giving customers less of a reason to port out.

What Will The Promo Cost Sprint?

Sprint is not heavily publicizing this offering, eschewing commercials and relying on emails and online promotions instead. The deal will be limited to online sales and it will not be available via Sprint’s retail stores. This could help the carrier cut selling, marketing and some tech support-related costs. Moreover, Sprint says that it typically doesn’t make money for the first year during its regular promotions, implying that the costs of the current deal may not be substantially higher than its other deals such as device promotions. Moreover, wireless is largely a fixed-cost business, and Sprint is likely to see relatively low marginal costs of adding subscribers, given that its network is not likely to be approaching saturation, unlike some of its larger rivals.

That said, the deal could come with some other repercussions. For one, ARPU is likely to decline in the near term, as the carrier would be adding on many non-paying subscribers. Moreover, churn figures could also rise down the line, if some takers of this offer decide not to continue as paying subscribers. Separately, the deal could also have implications for Sprint’s M&A prospects. Sprint’s parent company SoftBank has been in preliminary talks with T-Mobile about a potential merger. There is a possibility that deals such as this, which effectively make the wireless space much more affordable for customers, will run counter to a narrative that a three carrier market would be more attractive than one with four carriers.

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