Prepaid Market Could be Key for Sprint

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Sprint ( S ) primarily competes with other telecom companies like AT&T ( T ) and Verizon ( VZ ) in the mobile phone business. The company's stock seems to be recovering after a dip during its last earnings release, indicating improved investor confidence. Our price estimate for Sprint's stock stands at $4.35, which is only slightly above current market price.

Sprint's main business driver going forward will continue to be its postpaid business, despite subscriber losses observed over the past few years. Still, prepaid mobile phone operations remains a key segment for Sprint's business. Here we examine trends in Sprint's prepaid share of the US wireless market, and the impact they could have on the company's stock value.

Can Sprint's Prepaid Market Share Gains Continue?

We estimate that Sprint's prepaid share of the US wireless market increased from about 1% in 2008 to 4% in 2009 driven by its acquisition of Virgin Mobile, and we project slight market share gains going forward. We define Sprint's prepaid share of the US wireless market as the company's total prepaid subscribers as a percentage of total US wireless subscribers.

A steep rise in market share is unlikely in absence of any acquisition, however the appeal of Virgin Mobile could still continue to drive growth. Virgin mobile has introduced attractive prepaid plans like "Beyond Talk," which include unlimited messaging, data, e-mail and web browsing. Sprint also teamed up with Wal-Mart to offer cheap prepaid mobile phone services to customers. Additionally, introduction of smartphones in the pre-paid segment could provide a spark.

Sprint has also improved its customer service ranking, ahead of AT&T and in-line with Verizon according to the latest consumer reports, a trend that bodes well for the company's ability to attract new subscribers.

Upside Exists, but Sprint's Competitors Will Put Up a Fight

Verizon, who lost prepaid subscribers in the last quarter is looking to leverage the improved demand for prepaid connections. Verizon recently reduced the base rate of its unlimited prepaid voice plan to $1.99 per day, down from $3.99. The company also added Skype mobile support in November to some of the prepaid feature phones. Additionally, Verizon launched low-cost prepaid data plans for smartphone users few months back.

Though it will not be a cakewalk for Sprint, the opportunity is evident. If Sprint can counter the competition effectively with appeal of its multi-branding prepaid strategy and Virgin mobile's offerings there could be significant upside to our price estimate as market share could accelerate beyond our base forecasts.

Sprint's high debt makes it a highly leveraged company and, consequently, its price estimate is very sensitive to change in forecasts. For example, if Sprint is able to increase its prepaid share of the US wireless market past 6% by the end of our forecast period, as opposed to our base forecast of roughly 5%, there could be 15% upside to our price estimate.

You can see the complete $4.35 Trefis price estimate for Sprint's stock here.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: S , T , VZ

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