Pressure on Sprint’s postpaid ARPU
In the earlier part of this series, we mentioned that Sprint (S) should report a positive postpaid net customer addition during fiscal 3Q14. We also saw how aggressively the company resorted to price competition during the quarter with plans such as Cut Your Bill in Half to attract customers. The company’s management has not given a definitive guidance on average revenue per user (or ARPU) for postpaid customers for fiscal 3Q14.
We expect Sprint’s postpaid ARPU to decline year-over-year led by a smaller postpaid phone customer base as well as pricing pressure from competition. Earlier, AT&T (T) reported a decline in both wireless service and postpaid phone ARPU during the quarter. Additionally, Verizon (VZ) witnessed similar pressures on estimated ARPU during the quarter.
You can take a more diversified exposure to Sprint by investing in the Vanguard Telecommunication Services ETF (VOX), if the company’s lower ARPU affects you. VOX had a low ~1.9% holding in the company at the end of 2014.
Trend since fiscal 2Q13
Sprint’s postpaid ARPU has continued to decline since fiscal 2Q13. We mentioned in the previous parts of this series that the telecom company’s customers have been leaving the company. Losing postpaid phone subscribers has significantly impacted its ARPU.
Subscribers of postpaid phones such as Apple’s (AAPL) iPhone give a higher ARPU compared to those in other segments such as tablets. The company lost a significant 1.8 million postpaid phone customers since the end of 3Q13. Please read Why Sprint wants to add postpaid phone connections to learn more.
Additionally, the company resorted to adding tablets to manage large losses in its postpaid subscriber base. Consequently, the proportion of low ARPU tablet users increased in its postpaid subscriber mix. This has also negatively impacted ARPU during 2014.
However, the company managed a slowdown in its declining postpaid phone subscribers at the end of 2014. According to Marcelo Claure, Sprint’s CEO (chief executive officer) and president, the company restricted its monthly postpaid phone subscriber losses to a few thousand in December 2014.