Sprint Cell-Tower Giveaway May Put Pressure on AT&T, Verizon

Sprint Nextel Corp. said it plans to give some mobile-phone customers $100 pint-sized cell towers to improve coverage, a move that may put pressure on other competitors to follow suit.

“In certain situations, where you have really bad coverage in your home, we will give it to you as a retention tool,” Paget Alves, Sprint business markets group president, said in an interview. AT&T Inc. said it has given away the towers, known as femtocells, to some customers to test pricing models and Verizon Wireless said it doesn’t offer them for free.

A femtocell, about the size of a computer modem, acts like a mobile-phone tower, carrying a wireless signal inside a building for improved reception. Carriers may benefit from femtocells because the devices route calls through home Internet connections, relieving congestion on the companies’ networks.

“It’s a really effective way to offload traffic from the network,” said Craig Moffett, an analyst at Sanford C. Bernstein & Co. in New York. “One of the real puzzles is why carriers haven’t subsidized femtocells in larger quantities.”

Sprint, the third-largest U.S. mobile-phone carrier, and larger rivals AT&T and Verizon Wireless are seeking ways to add capacity as customers increasingly use mobile phones to surf the Web and watch video clips, boosting network traffic. AT&T, the exclusive U.S. carrier for Apple Inc.’s iPhone, has faced criticism for dropped calls since the first version of the device debuted three years ago.

Fewer Defections

Wireless carriers have tried selling femtocells for a few years, and less than one million units had been deployed worldwide as of last year, market researcher Berg Insight estimated.

Verizon Wireless’s Coverage Extender costs $249.99. Dallas- based AT&T’s 3G MicroCell costs $149.99, though the carrier has offered mail-in rebates in some states for limited time periods. Sprint’s Airave femtocell, currently priced at $99.99 with a plan, covers 5,000 square feet, according to the Overland Park, Kansas-based carrier’s website. The carriers don’t disclose femtocell sales.

“Should we subsidize it because we are getting some value out of it? Yes, because it’s going to improve churn,” Alves said, referring to the percentage of customers defecting. “We’ve got to do something to make in-building coverage as good as outside.”

Femtocells will not be free “for the mass market,” said Cristi Allen, a Sprint spokeswoman. They would only be given to customers under specific circumstances, where coverage is particularly poor.

‘Niche Product’

An AT&T spokesman, Fletcher Cook, declined to say how many femtocells or in what areas of the U.S. the carrier had given them away. The femtocell “is designed for the very small percentage of our customers who have wireless voice coverage challenges inside their home,” Cook said in an e-mail.

“It’s a niche product for us,” said Tom Pica, a spokesman for Verizon Wireless, co-owned by Verizon Communications Inc. and Vodafone Group Plc. He said the company had no plans to offer femtocells for free, though it does occasionally offer rebates.

Alves said Sprint will introduce later this year the next version of the Airave femtocell that will have multiple ports for phones, broadband access and other uses.

“It evolves to a device that allows you to get rid of other devices you use and eliminate other costs, whether it’s the phone bill for the landline provider or reducing your Internet-access charges,” he said. He didn’t discuss pricing details.

Sprint lost 4 cents to $4.52 at 9:48 a.m. in New York Stock Exchange composite trading. The shares had gained 25 percent this year before today.

To contact the reporter on this story: Greg Bensinger in New York at gbensinger1@bloomberg.net

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