Analysts have lamented recently that Sprint Nextel's stock is significantly undervalued. The stock has been hovering in the $20 range since the beginning of the year, despite the fact that analysts are screaming at investors to buy it up.
Banc of America Securities analyst David Barden last week complained that investors are undervaluing the stock and overstating Sprint's higher churn. Banc of America maintained a "buy" rating on Sprint as well as a price target of $29. Last Tuesday, Standard & Poor's Equity Research raised its rating on Sprint to "strong buy" from "hold," citing a more favorable valuation for the telecom giant's shares. "We think Sprint, a pure play wireless carrier, will grow faster than RBOCs," said S&P analyst Kenneth Leon. "We think the shares are attractive, priced near peers, but Sprint should grow faster." S&P has a $26 price target on the stock.
To me, Sprint has one major uncertainty hanging over it. How well will it integrate its two radically disparate networks--CDMA and iDEN--that each support two very different customer bases? The plan is to migrate iDEN users to the CDMA network around 2008, when EV-DO Rev. A is widely deployed. EV-DO Rev. A supports quality of service and includes a larger reverse link to support high-quality push-to-talk service. Gateway technology and and dual-mode handsets are expected to link the two networks while innovative features on the CDMA side are expected to entice existing iDEN users to migrate.
But iDEN users will be extremely vulnerable when Sprint begins prodding them to move. Will the quality of Sprint's new PTT network be as good as iDEN? Will this gateway solution be easy to implement, providing seamless services for iDEN users? And will competitors swoop in to take advantage of the transition?
Unequivocally, the quality of EV-DO PTT services must match that of the iDEN network, which has had years to evolve in terms of quality and coverage. Industry insiders say Sprint will use Qualcomm's Q-Chat solution for PTT services on the EV-DO network, which hasn't gone head-to-head with iDEN networks yet in a commercial setting. While Sprint says it won't force iDEN customers to move, you can bet it will do everything else in its power to get them to move in light of the cost advantages.
We will see more intense competition coming to the PTT market about the same time Sprint wants to move its iDEN customers. Unlike the early failures of competing PTT solutions, these solutions have significantly better QoS and less latency issues. Not only can competitors like Verizon offer EV-DO Rev. A technology that supports PTT, but Chinese vendor ZTE has been heavily marketing its GoTa PTT solution to CDMA operators in North America, some of which are trialing the service now. The GoTa system can be fully ported into an existing commercial CDMA network and has its own dedicated packet core that operates like a PSDN with significant added PTT functionality. ZTE says the connect times and media latency performance is high because of the way ZTE has constructed the system be leveraging the signal set within the CDMA network. The GoTa system has been put into commercial or pilot use in 22 systems worldwide.
Then there are other solutions already in the market, namely those from Cingular Wireless and Alltel, that use Kodiak's technology. They have some pretty good connect times and latency performance, and those operators are cutting their teeth on the consumer market at this point.
Everyone has learned their lesson about competing directly with the iDEN network, but a new opportunity has arisen now that could make the entire PTT market a free-for-all if Sprint doesn't carefully manage this migration. - Lynnette