Why Sprint keeps introducing attractive plans to create value

Why Sprint's stock plunged after the earnings announcement (Part 12 of 16)

(Continued from Part 11)

Sprint introduced a number of lower-price plans 

Under the leadership of new CEO Marcelo Claure, Sprint (S) undertook a number of initiatives to attract customers. In August, he introduced a $60 per month unlimited data, text, and voice plan. Comparatively, T-Mobile (TMUS) offers the same unlimited plan for $80 per month. Verizon (VZ) and AT&T (T) don't offer unlimited plans at all.

Claure then introduced a Family Share Pack plan. It gives customers double high-speed data at a lower price than AT&T and Verizon. These are similar to the family plans that Verizon and AT&T offer—the  More Everything plan  and Mobile Share Value plan , respectively.

In September, Sprint started offering the unlimited plan for Apple's (AAPL) iPhone 6 for $50 per month. Under its "iPhone for Life" plan, the iPhone 6 cost would start at $20 per month.

Sprint clearly introduced these plans to create value for customers. Management mentioned that it's seeing early signs of customers realizing the value of being associated with Sprint. The company has seen an increase of eight times in accounts with three or more lines—compared to the monthly run rate before the pricing changes.

Sprint's ARPU levels are declining

Although the plans started to attract more subscribers, it's affecting Sprint's average revenue per user (or ARPU) metric. As the chart above shows, Sprint's ARPU continues to decline. It declined from $64.24 in fiscal 2Q13 to $60.58 in fiscal 2Q14. This decline was also influenced by a higher tablet mix. This tends to draw lower revenue than smartphones due to the absence of voice-related revenues for tablets.

Another reason for the decline in ARPU was Sprint's strategy to put as many customers as possible on installment plans. Earlier in this series, we discussed why Sprint prefers to promote installment plans versus the subsidy plans. Although installment plans have higher operating margins associated with them, these plans tend to have lower monthly service fees compared to subsidy plans.

Continue to Part 13

Browse this series on Market Realist:

• Part 1 - Must-know: Sprint's stock decreased after the earnings
• Part 2 - Why Apple's iPhone 6 could instill life into Sprint
• Part 3 - Why Sprint is targeting prime customers to improve its churn rate

• Information Technology
• Company Earnings
• Sprint
• Verizon

 

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