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iPhone Could Crunch Sprint

Scott Moritz

But the Reston, Va., phone company's next wound may not even be self-inflicted. Industry watchers and investors say the next looming threat to Sprint comes from the hotly anticipated iPhone from Apple (AAPL Quote).

If the iPod-inspired phone has anything near the success that some observers expect, AT&T's (T Quote) exclusive arrangement to sell the phone will ring up big subscriber wins. The way some observers see it, many of those new AT&T customers will likely be coming from Sprint.

Sprint is the most vulnerable because it has one of the biggest groups of heavy data users, notes one investor who has no position.

At one time, Sprint was known as the technology leader by offering some of the most advanced phones. Of the four wireless players, Sprint did the best job attracting gadget lovers to its service. Sprint's customers are just the sort of texting, emailing, video-watching, music-listening hipsters that the iPhone is designed for.

Sprint isn't alone, of course. Verizon Wireless -- co-owned by Verizon (VZ Quote) and Vodafone (VOD Quote) -- also has its share of trendsetters who may covet the phone of the moment.

"This is going to cut into all the others' net adds," says the money manager, who is long Verizon.

Verizon Wireless is expected to report that it added 1.7 million net new customers in the first quarter, but Verizon's industry-leading pace isn't likely to last. And the June timing of the iPhone debut isn't necessarily good for Sprint.

Analysts predict Sprint will report a first-quarter net customer loss of about 250,000 users next week when it releases earnings. But that should be the extent of the Nextel damage, say observers. Sprint's efforts to improve the Nextel network and retain customers should start to pay off in the second quarter with the return of user gains.

But as Sprint's luck would have it, just when users stopped leaving, along comes the iPhone -- another reason to jump ship.

Sprint has somehow managed to perform an astonishing number of missteps in what has been an otherwise robust wireless industry growth streak. Huge customer losses and key executive defections were capped off last month when the company got booted off of the federal contract gravy train.

Some observers, however, say Sprint has a fighting chance against the iPhone with its Samsung UpStage device, which has a music player and large screen on one side and a phone on the other.

Sprint's UpStage sells at a fraction of the cost of the $500 iPhone, says Roger Entner, an industry expert with IAG Research. The lower-priced multimedia phone means Sprint has a much larger group of potential customers to sell phones to, says Entner.

"Does GM (GM Quote) care about the newest car from Bentley or Rolls-Royce?" asks Entner. "Not much."