Wireless

Sprint, a Distant No. 3, Limps Into the Future


Sprint, a Distant No. 3, Limps Into the Future

Illustration by Dan Cassaro

Shed a tear for the late, great unlimited wireless data plan. Neither AT&T (T) nor Verizon Wireless offers it to new customers. AT&T, which ended its deal in 2010, grandfathered in users who had unlimited plans. Verizon stopped offering the plans a year ago. But in March, AT&T began putting speed limits on its heaviest data users. And in June, Verizon announced that upgrading customers would not be eligible for subsidized phones if they stayed on unlimited plans.

That leaves Sprint Nextel (S) as the last refuge for data obsessives. The provider, with 56 million customers, now uses the tag line “Truly Unlimited” in ads and vows to stick to that deal as the industry migrates to speedy next-generation networks based on a technology called 4G LTE. It’s either savvy marketing or a sign of desperation from the perennial No. 3, which has posted five straight years of losses. “They need the subscribers,” says John Butler, a telecom analyst with Bloomberg Industries. “Unlimited is their only hook.”

For Sprint, it’s a make-or-break proposition. To win Apple’s (AAPL) permission to sell the iPhone, the company in September signed a four-year deal to buy at least $15.5 billion worth of the devices. That’s roughly 30.5 million phones, according to news reports. In the first quarter of 2012, Sprint activated 1.5 million iPhones, a pace that would put it dramatically short of its goal. Sprint itself says that it does not expect to profit from the iPhone until 2015. And according to research firm Gimme Credit, the high subsidy that Sprint pays to sign up iPhone customers is the primary reason for a slide of 2 percentage points in its operating profit margin. Sprint spokesman Scott Sloat says the company’s iPhone sales are on track and that it expects the higher up-front costs to be offset by greater customer loyalty and long-term profitability.

The financial hit makes it harder for the company to keep up with its competitors’ network upgrades. Sprint has announced that Atlanta, Dallas, Houston, Kansas City, Mo., and San Antonio will get 4G and “upgraded 3G service” on July 15. Verizon and AT&T, by comparison, have already rolled out 4G to markets covering 200 million and 75 million people, respectively. Sprint says it plans to cover approximately 120 million people with its 4G network by the end of this year, and that its national rollout should be complete by the end of 2013. As of its April earnings report, Sprint had upgraded 600 of the 12,000 sites it is targeting this year—although not all, it says, with 4G LTE.

Craig Moffett of Bernstein Research (AB) says Sprint’s ability to invest in upgrades is hamstrung by its “punishing” contract with Apple. “Sprint doesn’t have enough free-and-clear spectrum to launch a competitive LTE network,” he says, referring to the slices of radiowaves that carriers purchase and use to transmit data. “And it doesn’t have the money to [free up] spectrum that’s already in use.” The result: Sprint’s 4G customers will communicate over a weaker network. The next-generation spectrum Verizon and AT&T are using provide much better service than Sprint’s in buildings, says Moffett. “The first quarter was a quarter in which we were ramping up the pipeline, and we got a huge amount done in terms of zoning, leasing, and launching construction that gives us confidence that we’ll achieve our goals,” counters Sprint’s Sloat.

The company’s network expansion also involves a troubled investment in Clearwire (CLWR). Sprint has a nearly 50 percent stake in the Bellevue (Wash.) company, which is building a next-generation network based on WiMax, a technology that competes with 4G LTE but Sprint believes it can use alongside it. “WiMax,” says Butler, “will turn out to be Betamax. It never really caught on with the phone makers.” In February, Sprint cited as a risk factor “Clearwire’s ability to successfully obtain additional financing.”

The result is that, while Sprint is counting on being able to woo iPhone data hogs with unlimited data plans, it might not be able to provide the speeds and coverage they demand. “Unlimited is Sprint’s only differentiator,” says Jonathan Geller, the tech blogger who goes by Boy Genius. “But if they allow themselves to be known for worse coverage and slower speeds, people won’t make the switch to them for just unlimited.”

The bottom line: Sprint may be stuck between its commitment to sell 30.5 million iPhones by 2015 and its rollout of a competitive next-generation network.

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Farzad is a Bloomberg Businessweek contributor. Follow him on Twitter @robenfarzad.

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Companies Mentioned

  • T
    (AT&T Inc)
    • $33.87 USD
    • 0.21
    • 0.62%
  • S
    (Sprint Corp)
    • $6.08 USD
    • -0.01
    • -0.16%
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