Monday, January 07, 2008

Sprint Nextel: no inflection point nor WiMAX success just yet

Sprint Nextel is a tricky investment case. On the one hand, there is a meltdown of sorts. On the other hand, WiMAX holds a promise as a 4G solution. For those wanting to catch up, read these two articles: Light Reading summarizes all the big disasters (management, churn & customer service, joint ventures & technology choices), while IEEE focuses on the biggest issue going forward: WiMAX.
All will depend on the company reaching an inflection point and the take-up of the Xohm WiMAX-service. Success is inevitable, but timing is everything.
I believe it is still to early to jump in.
As to the former, it is very hard to make a trustworthy valuation in a case like this one. Market target prices range from $12 to $28, but personally I believe the share is still overvalued (based on takeover speculation, I suppose, related to Comcast which may find it harder to grow its basic subscriber base when capped at a 30% penetration rate).

As to the latter, I am a big believer in mobile broadband, but one has to be realistic. Mobile data so far is a big disappointment.
WiMAX may have a headstart over LTE, but there are several challenges: (1) LTE is the technology of choice for most entrenched players (all GSM and possibly some or most CDMA operators, including Verizon Wireless), (2) how does it scale?, (3) will there be enough of a choice of handsets and devices?, (4) will Xohm be open enough, and last but not least (5) demand as related to pricing.
What Sprint needs to do most, I believe, is to make Xohm really open to all internet-based services and it should come at a reasonable price.
Look out for usage numbers at Vodafone, which may have finally understood that currently data tariffs border on the insane. Vodafone NL is reducing data tariffs by up to 85%.

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