Analysts: Sprint's $60 plan could pressure T-Mobile, but not Verizon and AT&T

Sprint's (NYSE: S) new $60 unlimited plan for individual subscribers could put pressure on smaller rival T-Mobile US (NYSE:TMUS), according to financial and industry analysts, but it is unlikely to make a major dent in the armor of Verizon Wireless (NYSE: VZ) and AT&T Mobility (NYSE: T).

The new plan, which offers unlimited voice, texting and data and is $20 cheaper than T-Mobile's $80 unlimited plan, could help bring Sprint's prepaid customers into its postpaid business, analysts said. But in a research note, Jefferies analysts Mike McCormack, Scott Goldman and Tudor Mustata questioned the plan's effectiveness "given Sprint's network quality disadvantages."

"We see the new $60 unlimited plan as competitive to T-Mobile's $80 single line offer, but question the magnitude of competitive pressure it will create given network quality issues and the inability to be bundled within a family plan," the Jefferies analysts wrote on Sprint's $60 plan. "Absent a bundling discount within a family plan, Sprint's pricing advantage narrows with the number of unlimited plan subscribers: Sprint is cheaper for up to two lines, while T-Mobile is equivalent or cheaper for higher-end plans."

The analysts also noted that "a large number of industry eligible single-line subscribers have already migrated to T-Mobile recently and are on EIP contracts, limiting the pool to lower quality prepaid customers that could be incentivized to pay-up (most prepaid unlimited data offers cost $50-$60 and involve some sort of throttling)."

Sprint CMO Jeff Hallock told Bloomberg that the new pricing is designed to make the carrier more competitive than it had been with its discontinued Framily plans, which some analysts had criticized as too confusing. "This is a simple, straightforward, affordable plan," Hallock told Bloomberg. "There's no gimmicks to this, it's not a promotion, there are no hoops to jump through like T-Mobile's where you have to figure out how to refer others."

Sprint's $60 price does not include the cost of a phone; customers can either purchase a new phone through Sprint's Easy Pay handset upgrade program and pay for it in monthly installments, or they can bring their own phone, or they can purchase their phone at full price.

The Jefferies analysts noted that Sprint's $60 plan sits between Verizon's offer of unlimited voice, texting and 2 GB of data for $50 when customers finance their phone through its Edge handset upgrade program and AT&T's similar $65 offer. "Neither AT&T nor Verizon offer unlimited data plans, either on a single line or shared data basis," they wrote. "However, this has been the case for some time, so customers truly valuing unfettered access are likely already on Sprint or T-Mobile. Where we see modest risk is the potential to attract prepaid customers at the two largest carriers. Nevertheless, we believe AT&T and Verizon are likely to stay the course with current pricing, allowing less economical, high usage customers to seek comfort with the smaller carriers."

Jackdaw Research analyst Jan Dawson said Sprint's new pricing could help it hold onto customers for now, but he said it is not a long-term strategy. "It's something of a band-aid to help Sprint get through the next few months while they complete their network upgrade," he told the New York Times. "I don't think it's sustainable for any of the major U.S. carriers to compete on price alone."

The pricing changes come as Sprint and T-Mobile are trying to one-up each other. Sprint this week announced a limited-time promotion for its new family shared data plans that offers a family with up to 10 lines 20 GB of shared data for only $100 per month through the end of 2105, plus an extra 2 GB per line for up to 10 lines.

Meanwhile, T-Mobile this week said it will give any customer on its Simple Choice plans unlimited LTE data for a year if they bring a new customer to T-Mobile. For those Simple Choice customers who already have unlimited data, T-Mobile said it will give them a $10-per-month credit for a year.

Now that it has fired its bullets on pricing for families and individuals, Sprint's biggest challenge is improving the quality of its network, which was recently dinged for having the weakest data performance and speeds among the Tier 1 carriers by network testing firm RootMetrics. Sprint expects that its Spark service, including its 2.5 GHz TD-LTE service, will cover 100 million POPs by year-end. The service now delivers peak data speeds of 50-60 Mbps, but Sprint expects to deploy carrier aggregation on its 2.5 GHz spectrum by year-end to increase peak speeds to 100 Mbps.

For more:
- see this NYT article
- see this Bloomberg article

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