Sprint's (S) Prepaid Arm Offers IPhone, Boosts Subscriber

U.S. national wireless carrier Sprint Corp.’s (NYSE:S) wholly owned prepaid subsidiary, Virgin Mobile USA, has inked a deal with tech giant Apple Inc. (NASDAQ:AAPL) , to relaunch itself as an exclusive iPhone carrier, amidst stiff competition poised by others on similar policies.

Recently, United States Cellular Corp. (NYSE:S) , the wireless subsidiary of Telephone & Data Systems Inc. (NYSE:T) has revealed a similar offering of free iPhone 7 to subscribers who switch to its network from rival carriers in a bid to attract new customers. T-Mobile US, Inc (NYSE:T) is also a participant in this competition, offering customers a free Galaxy 8 on the purchase of one at full price.

Virgin Mobile’s Promotional/Advertising Scheme

As a promotional offer, Virgin Mobile is initially offering a year of “unlimited” talk, text and data for just $1, to users who buy an iPhone and port their number to the new ‘Inner Circle’ plan by Jul 31, or to current Virgin users who upgrade to an iPhone. The deal will be available exclusively through Virgin’s website and at Apple retail stores. After the first year, that price will move up to $50 per month. Customers who pre-order will receive their iPhone on Jun 27, 2017.

The handsets will be available at prices starting from $279 for the iPhone SE which will rise up to $770 for the iPhone 7 Plus. Like many other unlimited plans, Virgin’s offering has a few stringencies. If users exceed 23 GB in any particular month, then data transmission speed will automatically reduce.

Sprint’s Unlimited Offerings Amid Competitive Wireless Industry

Such unlimited offerings are nothing new for wireless carriers, especially for Sprint which has been the pioneer in this field. On Jun 13, 2017, the company launched a marketing promotion, offering a year of “unlimited” talk, text and data to users who switch from Verizon Communications Inc. (NYSE:VZ) , AT&T Inc. (NYSE:T) or T-Mobile US to Sprint before Jun 30, 2017. This move further intensified the mobile service pricing war going on among the four national service providers in the U.S. wireless market.

The U.S. wireless industry has become intensely competitive because of the presence of spectrum crunch, the growing popularity of iPhone and Android smartphones as well as threats from online mobile video streaming, cloud computing and video conferencing services.

Competition has intensified as success in the industry depends on technical superiority, quality of services and scalability. Hence, offering the latest version of iPhone7, which requires strong wireless bandwidth, could be a boon for the company.

Sprint's Prepaid Gain

In the last reported fourth-quarter 2016, Sprint gained 180,000 prepaid customers. As of Mar 31, 2017, Sprint had 59.702 million wireless customers (up 1.5% year over year) which included 11.992 million prepaid customers. The company has been successful in regaining its position, for the first time in two years, with the addition of prepaid customers.

We believe such a gain has been possible due to Sprint’s continuous efforts to lure customers from rival carriers by offering attractive promotional plans and lucrative discounts. Despite these positives, the marketing costs of such promotions raises concern by causing high cash burn and heavy losses for the company and may even impede margins in the coming quarters.

Currently, Sprint is a Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Over the past one month, share price of Sprint inched up 0.49%, outperforming the Zacks categorized Wireless National industry’s 0.10% growth.

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