For America’s fourth-largest wireless carrier, these are some dark times. Well, to be honest, Sprint Corp (NYSE:S) has been in dark times since its failed merger with Nextel back in 2005. But these are particularly murky times for S stock. And no, it’s not the usual culprits that come along with an investment in Sprint. No, this is a tad bit more sinister.
Simply put, the face of the telecommunications sector is completely changing.
While Sprint has stuck to its wireless guns, its primary rivals are undertaking some drastic measures to change their business models. This change is bigger than going from landlines to wireless communications. It’s not just one of distributing content, but creating it, data mining it and becoming a bit more “techy” overall.
That’s a severe twisting the entire industry, and without any plans to follow suit, Sprint’s new pitchman might not need to change his tone and ask if anybody is left to hear him at all.
No Real Push for Content at Sprint Stock
While Sprint and T-Mobile US Inc (NASDAQ:TMUS) have been fighting for the scraps at the bottom of the wireless pile, AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE:VZ) have not-so-quietly been changing the game. Each has continued to push forward with new plans to reinvent themselves in a big way. And much of that has to do with distributing and creating content across a wide range of mediums.
AT&T added DirecTV to its line-up and recently has made a play for Time Warner Inc (NYSE:TWX) and its vast media and movie properties. That would give T stock an edge over original broadcasting rights and future royalty streams from numerous hit TV shows and movies.
Not to be outdone, Verizon having seen the light in Yahoo! Inc.’s (NASDAQ:YHOO) enormous user base made a play for the website. This follows its deal for AOL. The combination provides V with plenty of advertising synergies and ability to data mine the two web communities. More recently, VZ has made a play for cable TV provider Charter Communications, Inc. (NASDAQ:CHTR).
The real point of these buyouts, mergers and additions to T and VZ’s umbrellas is about making total media companies. It’s about creating and controlling content. Essentially, building out ecosystems of segregated users. Want to watch Game of Thrones? You can do so on AT&T’s network, and you can stream it for free and no data caps on its DirecTV Now app.
And there is a good reason for T and VZ to look away from just being telecommunications stocks. Wireless demand is slowing in the U.S. The pace of new customers adding smartphones and cellular have slowed to a trickle. Pretty much everyone in the U.S. has a mobile phone of some kind at this point. The name of the game is taking subscribers from another carrier.
For Sprint that’s a big problem.
S stock is still bleeding customers to its rivals at a blistering pace. According to Consumer Intelligence Research Partners (CIRP) latest missive on the sector, Sprint finished 2016 with 14% fewer customers than when it started. CIRP’s data suggests the bulk of those customers went to T-Mobile. Sprint’s market share continues to drop, and now it’s really starting to become a three horse race than a foursome. CIRP notes that TMUS total subscriber base is getting awfully close to T’s and Verizon’s.
Sprint Needs a Deal Fast
So with less wireless subscribers in general and less of them coming to Sprint’s network, the firm has to be getting pretty nervous. And with AT&T and Verizon trying to create an enclosed system of content, digital and cable viewing, etc., Sprint has no choice but to think big. Right now, all it can do is cost cut, and that isn’t a viable long-term solution as its rivals dig deep to offer compelling content.
Rumors have speculated that S could buy T-Mobile to stay afloat. But more likely, TMUS could end up snagging Dish Network Corp (NASDAQ:DISH) considering they have done that dance before and the push by the Big 2 in that area. That would indeed leave Sprint between a rock and a hard place.
S did buy streaming service Tidal for $200 million, but the deal almost seems like a half-butted attempt to compete. Tidal only has about 850,000 users versus Spotify’s 40 million paid users. While Sprint could potentially use it to its advantaged, today it’s not even close to the kind of big deal that Sprint needs to survive the next stage of the wireless wars.
And I’m not honestly sure that deal can come given its $61 billion in debt.
Sprint Fading Away
In the end, S stock is quickly becoming a dinosaur in the world of telecommunications. Wireless subscribers are fleeing its network, and its main rivals are rapidly beefing up their operations to include more content and original programs as well as the distribution of that content. Sprint will have to make a similar move or face the reality that it’s fading into nothingness.
Until then, investors may want to avoid S. The turnaround story just isn’t there without one of these moves.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.
