) primarily competes with Verizon (
) and AT&T (
) in the landline business. Sprint's landline operations, which
include phone, data, and internet businesses account for close to
16% of the company's intrinsic stock value by our estimates.
Our current Sprint price estimate is $4.35,
which is about 13% above the current market price.
Landline Phone and Data Revenues Decline
landline phone revenues
have declined in the past few years due to a greater adoption of
alternatives like VoIP and mobile voice communication. Moreover, as
businesses have continued to migrate to IP-based platforms,
legacy data services
have suffered. Thus combined revenues from Sprint's landline phone
and data services have fallen from about $5.7 billion in 2005 to
$3.2 billion in 2009 and are estimated to decline further to $2.8
billion in 2010.
Internet Revenues Help but Slowing
This decline in revenue has been mitigated to an extent by the
growth in internet revenues. The revenues from this segment
grew rapidly until 2008, which helped maintain the overall landline
revenues. However, the growth has slowed considerably in 2009 and
is expected to be slightly negative in 2010. Part of this can be
attributed to the loss of a major VoIP contract for Time Warner
Cable in early 2010. Time Warner Cable (
) plans to phase out the agreement with Sprint to handle the VoIP
traffic for its digital phone service and will instead move to an
in-house platform. Loss of this contract, which was worth $500
million a year, could hamper Sprint in the years ahead.
Sprint's landline business will likely lean on its growth of
internet revenues, as the decline in other segments could continue.
Should our 2013 revenue forecast increase 10%, we see nearly 2%
upside to Sprint's intrinsic stock value.
You can see the complete $4.35 Trefis price estimate for
Sprint's stock here