On Monday morning, Sprint (NYSE: S) announced the launch of its brand new 4G network. The telecom began offering high-speed mobile phone and handheld connected device service in 61 markets, most of them centered in the Northeastern United States and branching out from New York City. The release of brand new smartphones, like the HTC EVO 4G and Samsung Epic 4G, accompanied the launch and Sprint began selling the Overdrive 4G, a new model of its portable WiFi hotspot device that the company emphasized as an accessory for Apple Inc.‘s (NASDAQ: AAPL) iPad.
The launch of the network also represented a clear victory over Sprint’s fiercest competitors, Verizon Wireless (NYSE: VZ) and AT&T (NYSE: T), whose 4G networks won’t launch until sometime next year. Twenty-four hours later, tough, Sprint shares dropped -2% down to $4.05 where they’re still hovering today. Why are analysts like William Blair & Co. giving Sprint low ratings? Why didn’t the new network give them a bump?
As a new Wall Street Journal article points out, the merits of a 4G network are not clear to consumers, limiting the power of Sprint’s marketing push touting that the telecom is “bringing you the first 4G wireless network.” According to a recent survey of 1200 consumers conducted by Yankee Group, a massive 68% either didn’t understand what the term meant or hadn’t heard it before. 57% weren’t even familiar with the 3G branding that has been the crux of mobile service marketing for almost two years.
Consumer confusion is understandable. The major telecoms themselves don’t have a uniform definition for what constitutes fourth generation mobile technology. How is it that Sprint can claim to have launched the first 4G network when T-Mobile USA claims to have “America’s largest 4G network?” Easily. “4G” in both cases is little more than a brand. Neither network meets that standard data transfer speeds to qualify as 4G according to the International Telecommunications Union, the United Nations agency in charge of setting global for communications tech including telecoms’ wireless networks.
The ITU has said that a network must tout an average data transfer speed of 100 megabits per second to qualify as fourth generation. Sprint’s new 4G network, built with Clearwire (NASDAQ: CLWR) using wireless broadband standard WiMax, only allows for download speeds of 6 megabits per second. T-Mobile USA’s 4G branded network, using HSPA+ technology, averages 8 megabits per second. In their push to lure in new subscribers with advanced technology using vague buzz words, T-Mobile and Sprint have fostered a confusing landscape for consumers and investors alike.
The market should only get more confusing next year, when AT&T and Verizon launch their “4G” networks that use HSPA+ and LTE technology respectively. It’s unknown what download speeds those telecoms’ networks will accommodate—though given its shared technology, AT&T’s can be expected to be in the same range as T-Mobile USA’s—but neither will likely meet the ITU’s standard for 4G speed. As of now, only WiMax 2 and LTE-Advanced technology are recognized as meeting the 100 megabit per second threshold.
The take away: investors should not put too much stock in network advancements based on marketing and branding. Smartphone and connected handset technology is growing steadily and any next-gen network shouldn’t be a factor for consumers for at least another twelve months. The 4G network branding won’t help Sprint or T-Mobile USA challenge AT&T and Verizon Wireless right now. Put it this way: Do not buy Sprint.
As of this writing, Anthony Agnello did not own a position in any of the stocks named here.
