), which competes with Verizon (
) and AT&T (
) primarily in the wireless business, is increasingly pushing for
smartphones in its prepaid segment. The latest move comes from
Sprint's subsidiary, Boost Mobile which has introduced the
BlackBerry Curve 8530, as well as from Virgin Mobile having
recently introduced the Android-based Samsung Intercept. For
Sprint, this provides an opportunity to increase the average
revenue per user (ARPU) that Sprint earns in its prepaid
Below we discuss more details around why the introduction of new
smartphones in the pre-paid arena is necessary and how it can
benefit Sprint's stock price.
Growing Demand for Prepaid Smartphones
Wireless service providers have traditionally promoted the use
of smartphones amongst the postpaid subscribers. Smartphones tend
to be expensive and thus, wireless service providers such as
AT&T, Verizon and Sprint have provided subsidies to pave the
way for easier adoption. As postpaid plans tend to be contractual
and more expensive than prepaid plans, the postpaid subscriber base
presents a perfect opportunity for wireless service providers to
get a return back on their investment.
However, the popularity of prepaid services has grown in recent
times as a result of which wireless services providers are willing
to expand the smartphone portfolio to prepaid subscribers as well.
Verizon recently opened up its smartphone portfolio to its prepaid
customers. Thus it makes it necessary for other players such as
Sprint to take similar steps. For Sprint, it is more critical
considering that prepaid subscribers account for nearly 25% of the
total subscriber base.
Potentially Higher Prepaid Revenues
Service plans for smartphones tend to be priced higher than
those for feature phones due to the higher data consumption
associated with smarpthones. In the past, Sprint has not offered
smartphones for its prepaid customers, but recently introduced
BlackBerry and Samsung smartphones along with a $60 unlimited
Although prepaid subscribers tend to be price sensitive, the
availability of smartphones with no contractual obligations could
potentially lure them to higher priced prepaid plans for these
phones, which in turn can boost Sprint's prepaid revenues.
5% Upside to Sprint If 20% of Prepaid Subscribers Upgrade
According to a research update on the US wireless market, about
one-third of Sprint's wireless ARPU can be attributed to data and
the rest to voice. This suggests that in the $60 unlimited prepaid
plan for recently introduced smartphones, approximately $40 can be
attributed to voice and $20 to data. Both of these figures are
higher than our current estimates for Sprint's
prepaid voice ARPU
average data ARPU
. Moreover we estimate that Sprint will have close to 11.5 million
prepaid subscribers by the end of 2010.
Based on the figures above, we estimate that if about 20% of
Sprint's prepaid subscriber base upgrades to high-end smartphones,
it can potentially add close to $550 million in incremental
revenues for Sprint. This translates to an increase in prepaid
voice ARPU for 2011 by $2.30 over what we currently expect and an
increase in overall average data ARPU by $0.50 over what we
currently forecast. This can lead to a potential upside of 5%
to our Trefis forecast price estimate for Sprint's stock.
You can see
the complete $4.97 Trefis price estimate for
Sprint's stock here.