Sprint’s Rate Hike Gamble

Sprint Nextel Corp. (NYSE: S) is taking a gamble on a rate hike to its 4G smartphone plans. Sprint will charge another $10.00 per month beginning on January 30. Effectively it is extending the surcharge for “Premium Data” for its entire 4G smartphone lineup.

The move is for new subscribers and will not come to existing customers until their next smartphone upgrade. While there may be some customers who cut their bills in the new plan, the Everything Data bundled plan for unlimited data and texting moves up to $39.99 per month.

The move is initially being deemed a flop by the market. Verizon’s similar plan is $29.99 on top of the bill and T-Mobile’s plan is $30.00. AT&T Inc. (NYSE: T) announced a change to its rate plan last year that offers lower rates to lower users and charges for that 2% or so of its clients $10 more per extra gigabyte used.

Here is where the problem starts, and it goes above and beyond what peers and competitors charge… Sprint has a much harder time adding customers and it does not have a profitable structure today. The HTC Evo 4G smartphone is a great phone according to most users. At issue is that the HTC Evo still has the Apple Inc. (NASDAQ: AAPL) iPhone to contend with along with a slew of competition from Research in Motion Ltd. (NASDAQ: RIMM) for its Blackberry and also the slew of non-Evo Google Inc. (NASDAQ: GOOG) Android phones at other carriers. If you drive by a Sprint Nextel store today, drive by the closest Verizon and AT&T stores and see which retailer is consistently busier.

Oddly enough, most price hikes do not drive away as many customers as some might think. The process of changing providers and changing phones is not really worth the effort to most users unless it is for the latest and greatest smartphone. The move acts more like an irritant rather than a flash-point. If there are a series of irritants combined in a short period, the culmination of all irritants becomes the flash-point or the catalyst.

Sprint was already in a position of weakness compared to AT&T and to Verizon despite 4G and despite having good service. It is unfortunately not profitable under the current dual-network strategy. The gains for shareholders from the Nextel acquisition have been elusive as finding a four-leaf clover. As far as the market reaction, the vote is a thumbs-down vote as shares are lower on the day.

Sprint Nextel shares are down 1.45% at $4.39 versus a 52-week trading range of $3.10 to $5.31.

Read more: Sprint’s Rate Hike Gamble (S, T, VZ, AAPL, GOOG, RIMM) - 24/7 Wall St. http://247wallst.com/2011/01/18/sprints-rate-hike-gamble-s-t-vz-aapl-goog-rimm/#ixzz1BPzIBdUE