The days of a new Apple (AAPL) iPhone being a carrier exclusive are long past. Yet with the iPhone 6 several days into pre-order, one carrier — Sprint (S) — seems to be benefiting more than others. After its failed attempt to acquire T-Mobile (TMUS) and hitting new lows in August, Sprint’s stock surged more than 20% as it began taking pre-orders for the new iPhone 6 and iPhone 6 Plus. What gives?
It’s all about new Sprint iPhone 6 deals that could prevent more Sprint customers from jumping ship as part of the next big smartphone upgrade cycle — and may actually lure customers back from the competition.
T-Mobile has been a thorn in Sprint’s side, adding subscribers at the rate of one million a month for over a year, and much of that growth has been at Sprint’s expense. AT&T (T) and Verizon (VZ) have been largely unaffected by T-Mobile’s gains, but Sprint has been bleeding customers to the point where there are just 3 million subscribers separating it from T-Mobile.
Sprint’s proposed $32 billion deal to buy T-Mobile would have put Sprint on much stronger footing to compete against its two much larger rivals, giving it access to T-Mobile’s superior network.
But with the acquisition killed by regulators and a new CEO taking the helm, Sprint had to do something to put an end to T-Mobile’s poaching of its customers — while aggressively going after Verizon’s and AT&T’s.
Apple’s iPhone 6 and the frenzy associated with it was the perfect opportunity to introduce a new Sprint iPhone deal that grabs consumer attention.
Here’s what Sprint is offering as part of the iPhone 6 launch:
- A minimum $200 trade-in for any iPhone on a new iPhone 6 or iPhone 6 Plus
- Up to $350 pre-paid Visa (V) credit card to cover early termination fee or installment billing balance when switching from a competing wireless carrier
- Sprint Simply Unlimited (unlimited data, text and talk) for $50/month
- Sprint Family Share Pack (20 GB shareable data + unlimited text and talk) for $100/month
- iPhone for Life Plan (zero down, $20/month and a new iPhone guaranteed every two years)
So, what does that mean for S stock?
In a nutshell, the Sprint iPhone deal will have Sprint paying all (or a big chunk) of any termination fee to get its rivals’ customers to switch, and giving them another $200 for an old iPhone. Sprint is also offering data plans that match T-Mobile’s pricing while offering more data; it significantly undercuts the big two on cost and provides much more data.
To top it off, the new “iPhone for Life” plan means Sprint customers can get a new iPhone 6 for zero down, pay $20 a month for the device (that’s less than a two-year monthly installment plan to buy the device outright) and after two years, they hand it back and get a brand new iPhone. That’s for the base iPhone 6, with an iPhone 6 Plus going for more, but it’s an attractive offer.
Clearly, the market thinks this combination is going to prevent Sprint from losing more of its customers this fall, turning things around and letting Sprint regain lost ground.
However, there are questions to consider about Sprint’s iPhone 6 tactics, most of them financial.
For example, if Sprint is willing to shell out hundreds of dollars per new customer to have them transfer from a competitor and hand in their old iPhone, how will this affect the bottom line? If someone netted $350 in early termination fees plus $200 on an old iPhone 3G, that’s $550 Sprint has to amortize over a two-year contract — almost $23/month in subsidy.
Cutting costs on plans also decreases the revenue it receives for each customer.
Then there’s the issue of its network. As CNN Money’s David Goldman pointed out in August, Sprint has the slowest 4G network of the big U.S. carriers and was ranked by Consumer Reports as having the country’s worst cell phone service.
Will iPhone 6 buyers abandon the relative speed and reliability of AT&T, Verizon or T-Mobile in exchange for the carrots Sprint is offering? If they do, will they remain on Sprint or get sick of the service and jump ship again the first chance they get?
That where the “iPhone for Life” angle on this Sprint iPhone 6 deal is going to help. Aside from all the incentives to attract new customers, the prospect of paying just $20 per month to get a new iPhone 6, being able to hand it in after two years and then being given a brand new iPhone without having to pay anything extra is going to appeal to a lot of people.
Will “iPhone for Life” be enough to counter Sprint’s network deficiencies? Will competitors like the aggressive T-Mobile eventually counter with a similar offer to Sprint’s iPhone 6 deal? The answers to these questions will play a large role in determining whether Sprint’s stock resurgence is a blip, or the start of a recovery.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
