The third-largest U.S. wireless carrier Sprint Nextel Corp. (S) set a new record for daily sales of a device family with the new Apple Inc.’s (AAPL) iPhone.
Sprint debuted iPhone 4 and 4S, putting pressure on the two dominant players –– AT&T Inc. (T) and Verizon Communications (VZ). The smartphones exceeded Sprint’s expectations at the day of launch, thanks to its unlimited data plan starting at just $79.99 per month.
Instead of unlimited offerings, AT&T and Verizon charge consumers according to their usage of data services. The two companies offer iPhone 4S at $199.99, $299.99 and $399.99 for 16 GB, 32 GB and 64 GB, respectively, each with a two-year contract.
We see the iPhone as a big win for Sprint, which is struggling to turn around its business after its disastrous merger with Nextel in 2005. Sprint’s share has been eroding persistently in the U.S. wireless market due to its inability to keep pace with its peers in providing competitive services. The sale of the iPhone has yielded lucrative returns for both AT&T and Verizon; the former marketing it since 2007 while the latter joining the fray this February.
Sprint has nevertheless recovered to a certain extent from subscriber losses and gained from improving customer service. At the end of the second quarter, Sprint had roughly 52 million customers while AT&T and Verizon had 99 million and 106 million subscribers, respectively.
The addition of the iPhone will help Sprint to gain new customers and retain the old. This will lead to increased subscriber growth, reduced churn and higher average revenue per user.
However, the company is investing heavily to subsidize the product that would hurt operating margin. Sprint has promised to buy about 30.5 million iPhones from Apple over the next four years and pay $500 to subsidize the product.
We currently maintain our long-term Neutral recommendation on Sprint. For the short term (1–3 months), the stock retains a Zacks #3 Rank (Hold).
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