The best turnaround investing opportunities can occur when a number of factors suggest the prospect of increased value. For that reason, it’s my opinion that investors should consider the case for Sprint Nextel.
First, sentiment is growing that while Sprint’s network is not yet on par with U.S. quality leader Verizon (VZ), it is significantly improved, keeping Sprint’s reputation solidly above quality laggard AT&T (T).1
Second, Sprint is developing its business for prepaid phones. 2 While pre-paid phones are not the “by all end all” of the mobile phone marketplace, this is an interesting development. Aside from being profitable, the pre-paid market could be a feeder for traditional contract customers through a pipeline of younger users and people who will get a regular plan when they get on their feet as the recession subsides.
Third, I believe that Sprint’s marketing campaign with CEO Dan Hesse making the pitch has finally shifted into a broadly effective message. Using top executives in advertising can work well if done right. Lee Iaccoca’s commercials for Chrysler arguably saved the company in the 80’s,3 though the pathetic YouTube video done by pre-bankruptcy General Motors (GM) CEO Rick Wagoner was a signal for prudent investors to abandon a sinking ship. 4 While the original Hesse commercials projected a detached persona that may not have connected with some viewers (I know it didn’t with me), 5 the new ones show Hesse as an executive who can acknowledge that Sprint’s products needed improvement while speaking with conviction about the quality of his team’s present offerings.6 Take a look yourself and see what you think. Equity analysts may be more comfortable with numbers than qualitative judgments like evaluating the effectiveness of an ad campaign, so if the Sprint ads are better than analysts are willing to assume there may be hidden value.
Fourth, AT&T’s contract with Apple (AAPL) to be the exclusive U.S. wireless carrier for the iPhone runs out in 2012,7 and its expiration represents an opportunity that could help Sprint. It’s widely thought that the new scheme will let iPhone owners use Verizon, bowing to consumer demand for Verizon’s superior service. Whether or not that happens—Apple has been known to be unpredictable in its supplier decisions—the result is likely to hurt AT&T and ultimately handicap the company in its run against Sprint. And while it would be completely speculative to say that Sprint could become an iPhone carrier, Hesse’s public acknowledgement of the iPhone’s quality signals that it’s not outside the realm of possibility that Sprint could get in on the iPhone’s action if it can’t deploy a meaningful competitor.8
So while nothing is certain in investing, there’s a good case for giving the call to Sprint for those who can wait.
I may be contacted at firstname.lastname@example.org.
(Sprint shares had closed at $4.15 a share when this post was originally published on the evening of May 12, 2010.)
Disclosure: The author does not hold a securities position in Sprint (S), Verizon (VZ), AT&T, or Apple (AAPL).
I remind readers that the information provided on this web site does not constitute professional investment advice, and should only be used in consonance with all available information, including the opinion of a professional adviser, to make an investment decision.
- Will Park, “AT&T customers log the most dropped call complaints, Verizon claims fewest,” IntoMobile.com, May 5, 2010, http://www.intomobile.com/2010/05/05/att-customers-log-the-most-dropped-call-complaints-verizon-claims-least.html; Harry McCraken, “Verizon vs. Sprint vs. AT&T,” June 29, 2009, http://technologizer.com/2009/06/29/verizon-vs-sprint-vs-att/. [↩]
- Niraj Strern, “Spring Nextel Adds Prepaid Cellphone Brand,” Wall Street Journal, May 7, 2010, p. B5. [↩]
- A classic Iaccoca ad for the Chrysler LeBaron can be viewed at http://www.youtube.com/watch?v=v6nmCFTmPnE&feature=related [↩]
- The video can still be viewed at http://www.youtube.com/watch?v=NhJ7LXxShCc. [↩]
- See this early Hesse ad, that says nothing about the Sprint network’s quality, at http://www.youtube.com/watch?v=ni-VeMEx6pA. [↩]
- See a March 2010 Hesse ad at http://www.youtube.com/watch?v=ox4w02Xj2QE&feature=player_embedded. [↩]
- Bard Dybwad, “AT&T has iPhone exclusivity until 2012,” cnn.com, May 11, 2010, http://www.cnn.com/2010/TECH/05/11/iphone.att.2012.mashable/index.html. [↩]
- See Hesse’s praise of the iPhone and the Apple brand at http://www.youtube.com/watch?v=3aDspxhNtvQ. [↩]