) primarily competes with AT&T (
) and Verizon (
) 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
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 (
) 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.