Rather than significantly subsidize the purchase of an Apple (AAPL) iPhone every two years — as most carriers have traditionally done — Sprint was setting itself up to partially subsidize the purchase of an iPhone about once per year.
When all is said and done, that tactic could end up costing Sprint a great deal more money than it would have otherwise spent winning customers.
The commentary wasn’t especially well received by Sprint enthusiasts, who were quick to suggest I was missing the point that this was financially a sweet deal for consumers.
But, I got the point.
My own point was, every dollar that consumers saved with their Sprint plan was a dollar that ultimately crimped the value of Sprint stock. Someone had to ultimately pay for the expense of the offer, and in this case, it was the company’s shareholders.
Sure, perhaps for some companies it would be worth it, at least in the name of achieving greater scale. But Sprint isn’t one of those companies.
The struggling carrier is not only shrinking, it’s bleeding money. Putting a costly iPhone marketing plan in place will only exacerbate the problem.
I would have thought Sprint would be wise enough to put the brakes on all the freebies and deep discounts it was serving up (but couldn’t actually afford) after unveiling the iPhone offer. Unfortunately for current owners of Sprint stock, I was wrong. The company found another way to pointlessly burn money again today.
Oops, Sprint Did It Again
This is, of course, a direct jab at AT&T (T), which recently acquired DirecTV and is already bombarding its customers with AT&T marketing. Specifically, AT&T is offering a $500 credit to any DirecTV subscriber who switches to an AT&T wireless service.
In that light, the timing and the depth of the deal make sense. Those customers are still up for grabs, but the longer they remain unapproached, the more likely they’ll end up moving under the AT&T umbrella.
And this isn’t a cheap (at least in a cash sense) tactic for Sprint, either.
The year’s worth of free Sprint service is relatively basic: unlimited talk and text and 2 gigabytes of data for up to five lines each. It’s not a package that Sprint readily offers online, but based on comparable plans Sprint makes available, it’s an offer with a retail value of about $700.
Interested DirecTV subscribers still have to purchase a phone to use the plan, but for a free service, at least some will find it worth the cost.
Not a bad deal, you say? You’re right. It’s not a bad deal. The question is, who’s ultimately footing the $700 bill? After all, nothing is free.
Answer: That $700 worth of service comes right off the company’s bottom line, which means shareholders of Sprint stock are paying the bill.
Bottom Line for Sprint Stock
Just for the record, none of this is to suggest Sprint should simply ignore reality and not competitively price its products. At the very least, Sprint should want to be able to do what AT&T or Verizon (VZ) are willing to do in the name of subscriber growth. And, if Sprint is successful with its ploy, it may well achieve enough scale to become viable again.
There’s a difference, however, between Sprint and AT&T, or Sprint and Verizon. Verizon and AT&T are reliably profitable cash cows, while Sprint isn’t. Verizon and AT&T are also holding on to subscribers, while Sprint continues to lose them.
Oh, the theory behind the offer to DirecTV subscribers is sound. But, it’s only a savvy move for Sprint if the company can assure investors — and itself — that it can achieve some sort of return on investment with what’s ultimately a very expensive purchase of a customer … a cost-conscious customer that may or may not stick around once the one-year agreement expires.
Consumers may be thrilled, but owners of Sprint stock should still be worried.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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