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That is, if it could attract that number of subscribers with this offer, even its unadjusted core cash flow deficit would be eliminated. At the risk of plunging even further into minutia, I must point out that even this is a rough analysis. A full analysis would require adjusting for residual device values, imputed subscriber revenue, non-postpaid phone device connections, non-iPhone subscriber additions, and several other factors. But some of those factors push Sprint up and others push it down, and I honestly wouldn't be surprised if they about balanced out in the end.
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I think this rough calculation gives a pretty accurate estimate of cash flow impacts of Sprint's new iPhone strategy. I maintain my view that Sprint is selling extremely low on its spectrum holdings, and that its return to net profit allows it to hold out for a better offer.
This is, of course, contrary to the general consensus, as expressed excellently by Contributor Mark Rewers and others, that Sprint needs the deal even more than T-Mobile, and thus had to take the price T-Mobile offered. But for now, I'm holding my Sprint stock, as it will either convert with the merger or remain independent and continue to represent a severely undervalued spectrum asset.
If it converts, it represents a discount on T-Mobile stock at current market prices.
When the market offers a discount, why not take it? If it doesn't, it remains the owner of the best spectrum holdings in the US and has only a short distance to go if any at all to eliminate the last of its red ink. The shortfall of 1.
However, it did this while offering substantially smaller iPhone discounts that were not nearly so far ahead of competitors. It seems one of two things will happen: Either Sprint will see accelerated subscriber growth with its new offer, eliminating the shortfall faster, or it will not, and the offer will be terminated, increasing free cash flow per subscriber gained and again reducing the time to breakeven - again, if you choose to focus on the one metric that says Sprint isn't profitable already.
Sprint Cell Phone Plans - NerdWallet
The primary risk to this, obviously, is if neither of these things happen. If Sprint fails to merge and fails to attract subscribers at positive cash flow margins, it will eventually bleed enough cash to eliminate its viability and be forced into a fire sale, even worse than the one it's already doing with T-Mobile. On balance, the reward far outweighs the risk.
I've long expected its DirecTV merger would prove problematic in the long run, and I still feel that way. This may be an indicator of that. Apple also must not be forgotten here, in all this debate about carrier iPhones. As I've noted before , Apple remains practically the only manufacturer wireless carriers are willing to lavishly subsidize in this fashion. This suggests that carriers, who may be in the best position to know, continue to see iPhones as absolutely integral to the entire wireless experience.
And if so they will probably continue to give Apple a substantial leg up on the competition, usually at their own expense and minimal cost to Apple.
What the T-Mobile Takeover of Sprint Means for Your Wireless Bill
I consider Apple fairly valued and would rate it a Hold, but I'm not sure I would still consider it a bargain. As I said, my goal here is to foster a consensus and conversation between bears and bulls about facts, as well as present my reasons for being bullish. Verizon VZ abandoned its contract program this week.
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Sprint customers will either have to pay full price for their smartphones upfront, pay off the phone over the course of two years, or lease their phone from Sprint. Two-year contracts are going the way of the dinosaur, as cell phone companies look to end expensive phone subsidies. Ending the two-year deals adds transparency to what used to be an opaque process. It was unclear how much you were paying each month for your phone and how much you were paying for your service.