Sprint's New Data Plan Pricing Could Lift Stock Value 15%

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Sprint ( S ) primarily competes with AT&T ( T ) and Verizon ( VZ ) in the mobile business. Our price estimate for Sprint stands at $4.35 , in line with market price. The company recently announced a $10 monthly price increase for its unlimited data plans. The charge will be applicable to new smartphone activations, and current subscribers will not be affected unless they upgrade or change their phones.

With increasing proliferation of smartphones, data usage has skyrocketed in recent years. Carriers are trying different ways to extract profits from this trend and control the boom that has threatened to clog their networks. For example, AT&T is offering tiered plans and charging extra for overuse. Verizon is going for tiered data plans as well but is also keeping unlimited plan options with the upcoming launch of Apple's ( AAPL ) iPhone on its network. Carriers will need to strike the proper balance between rising data traffic and plan fees in order to reduce strain on their networks.

Sprint's does not currently offer any tiered pricing plans, but its recent move will facilitate revenue extraction from the surge in data demand. As telecom companies continue to invest heavily in network improvements, an increase in data plan pricing seems to be a fitting move.

So how could this decision alter the outlook for Sprint?

Data Revenue Impact

The price increase will only affect new smartphone activations which can either come from new customers or existing customers that upgrade their phones. Consequently, the revenue gains are likely to be spread over a longer time horizon. We do not anticipate a material customer backlash in the wake of the fee increase, since other major carriers are either following a similar strategy or limiting data usage.

A little over 40% of Sprint's subscribers have smartphones, all of which utilize unlimited data plans. If we make a blanket assumption that all of these customers ultimately move to the newer plan (through either upgrades or new smartphones), it could add an estimated incremental $3 of data ARPU (averaged over all subscribers). Assuming this shift happens over the next 2 years, our price estimate for Sprint could see 15% upside.

Drag the trend line in the modifiable chart above to how various scenarios for internet and SMS revenue per subscriber could affect Sprint's stock value.

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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: AAPL , S , T , VZ

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