Sprint Corporation (S) is leaving no stone unturned to intensify the wireless pricing war in the U.S. The third largest wireless communication company in the country has claimed that it will reduce the phone bills of AT&T (T) and Verizon Communications (VZ) customers by 50% if they switch to Sprint. However, this development failed to boost investor sentiment as Sprint’s stock fell more than 3% yesterday.
Sprint’s new Cut Your Bill in Half Event, which will kick off from Dec 5, 2014, will give its network users unlimited talk and text options to anywhere in the U.S., irrespective of their current plan. Sprint also promises to cut the monthly data plan charges by 50% for customers who are willing to change over from Verizon or AT&T. Customers can enjoy the deal as long as they stick to the plan. Moreover, the company will also pay early termination fee of up to $350 for customers interested to switch over to its network.
In addition, under this new deal, every member in a family plan will have to purchase a new phone from the company, in lieu of their current devices which they must surrender to Sprint.
This move to poach customers from rivals appears to be a desperate bid on Sprint’s part to revive its customer-base after losing subscribers over a long time. In the second quarter, Sprint lost a substantial 272,000 postpaid subscribers. On the other hand, its major competitors, namely, Verizon Communications, AT&T and T-Mobile US Inc. (TMUS), gained massive postpaid subscribers in the same quarter. Sprint’s quarterly total retail pre-paid and postpaid subscribers churn rate has also deteriorated as it has lost several of its high-end users to rivals.
We believe Sprint’s new offer will increase the company’s marketing expenses in the coming quarter. The company’s operating expenses in the previous quarter were $8,680 million, up 8.6% year over year. Operating loss was $192 million compared with $358 million in the year-ago quarter. Nevertheless, this deal should prove beneficial to the company’s top line, Average Revenue per user (ARPU) and simultaneously, help check customer churn in the long run.
Sprint currently has a Zacks Rank #4 (Sell).
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