NEW YORK (TheStreet) -- Sprint (S) may soon aggressively cut its wireless prices under new Marcelo Claure, according to analysts who have met with the telecom’s incoming CEO. Claure could time Sprint’s price cuts with Apple's (AAPL) rollout of the iPhone 6, which is expected this fall.
Price cuts, analysts say, may be Sprint’s only way forward after regulators nixed the company’s long-speculated merger with T-Mobile (TMUS) and the company continues to suffer from subscriber losses, particularly in higher priced post-paid smartphone plans. While analysts generally feel Claure is the right manager to push Sprint into a more competitive stance in the U.S. wireless market, they believe promotions will drag on the company’s profitability in coming years.
Sprint currently is majority owned by Japanese telecom SoftBank, which lobbied for a merger with T-Mobile. Now, with that deal off the table, Sprint’s owners are likely to return to a multi-year pricing, spectrum acquisition and infrastructure investment plan that may cost in excess of $10 billion, according to UBS analysts.
"We expect a newly aggressive Sprint prior to next month's iPhone refresh, which will turbo-charge competition in the wireless industry," UBS analyst John Hodulik said in an Aug. 13 client note. While those price cuts will position Sprint to take high-end wireless subscriptions from competitors and lower overall churn, Hodulik said he believes Sprint will lower its 2014 guidance next quarter.
Currently, Sprint has forecast between $6.7 billion and $6.9 billion in earnings before interest, taxes, depreciation and amortization (EBITDA) for calendar 2014 based on current wireless prices. Hodulik expects post-paid average revenue per user (ARPU) to fall 5.5% in 2014, and EBITDA to come in at $6.5 billion. The analyst also lowered UBS’s forecasts for Sprint’s 2015 EBITDA from $7.5 billion to $6.2 billion, and from $8.6 billion in 2016 to just $7.2 billion.
Sprint declined to comment specifically on its pricing strategy under incoming CEO Claure until a formal announcement is made.
"At this time, our CEO, Marcelo Claure, will work with his management team to continue to provide customers with the best wireless experience by building our network across our strong spectrum portfolio and offering the most competitive pricing and innovative devices in the industry," spokesperson Roni Singleton said in an email to TheStreet.
UBS's Hodulik cut Sprint's price target to $6 from $8 due to his belief the company may increase pricing promotions. He also noted that promotional activity by Sprint could weigh on the entire telecom sector.
"[We] believe it will be difficult for any of the wireless stocks to outperform the market in [the second half of 2014.]," he said, while characterizing Sprint as the "next shoe to drop" in a new competitive environment for the wireless sector.
Wells Fargo analyst Jennifer M. Fritzsche said in an Aug. 8 client note that Sprint may focus on cost management, competitive pricing and continued network investment after meeting with CEO Claure this month.
Claure characterized Sprint’s pricing strategy as "aggressive" to Wells Fargo, Fritzsche said. ''We need everyone who is looking to re up with their current carrier to give Sprint a good hard look before doing so,'' the analyst quoted Sprint’s CEO as saying.
"We liked what we heard. In our view, Claure brings a unique perspective of Sprint's main competitors and solid experience running a lower margin business. This should help in the cost containment focus which seems to a top priority for Sprint," Wells Fargo concluded.
Apple iPhone 6
Apple's iPhone 6 launch may prove to be a pivotal moment for Sprint. The telecom, plagued with the burdensome acquisition of Nextel, was late in offering early iterations of the Apple iPhone and lost significant market position to AT&T (T) and Verizon (VZ) as customers took to smartphones.
Now, with subscribers moving into a position to upgrading old smartphones, Sprint will need to try and hold onto its existing customers and even attempt to grab subscribers from competitors. Promotional efforts surrounding the highly-anticipated iPhone 6 launch may prove to be a pivotal early test for Claure and Sprint's new owner, SoftBank.
SoftBank's chairman Masayoshi Son has always been highly regarded in Silicon Valley, and he has long-running ties with Apple. Perhaps, as Apple launches the iPhone 6, Sprint customers and investors will get a better sense of just how aggressive the telecom will be in the U.S. wireless market.
-- Written by Antoine Gara in New York