New buyers, contracts will spur profit over time

Just how large Sprint's "bet the company" move in agreeing to carry the iPhone at a high subsidy cost has been revealed in the company's 2011 10-K filing with the FTC. The carrier agreed to a minimum order of $15.5 billion in iPhones over the course of four years, and is projecting a deficit in 2012 in part due to the high subsidy it offers on each new model, up to $450 off the $850 full cost of a 64GB iPhone 4S.

Despite the risky strategy, the company is already seeing benefits by offering the iPhone. Sprint picked up 640,000 new iPhone subscribers during the holiday quarter (40 percent of iPhone sales) and sold a total of 1.8 million iPhones. While still small compared to rivals AT&T and Verizon, each of those new customers will generate between $70 and $120 per month for at least 24 months, making them collectively worth an additional $1 billion in revenue. This figure doesn't even include existing Sprint customers who have renewed or upgraded to the iPhone, usually at the cost of a small increase in their monthly average bill.

Part of Sprint's appeal is that it is the only remaining US carrier offering truly "unlimited" data to its subscribers. While the cost of those plans runs into the upper range of smartphone plan prices -- which start at $80 per month -- it is a selling point for those who rely on tethering or otherwise tend to use large amounts of 3G data. It also offers simplified "everything" plans that offer unlimited talk, text and data -- even on a family plan -- for one flat price.

So far, the iPhone appears to have injected new life into Sprint, which was losing customers over its lack of the iPhone until it finally worked out a deal in October in conjunction with the iPhone 4S. Sprint also sells the iPhone 4 in a single 8GB option but does not carry the iPhone 3GS, which is only offered in a GSM configuration incompatible with Sprint's CDMA-based network. The company has also picked up customers by offering an easier unlock policy which, while still restrictive, is more generous than AT&T's policies.

Sprint's filing says that while it will run a $1.3 billion deficit in 2012, it expects to begin making up for it the following year and to show profitability on the iPhone purchase agreement by the end of the four-year contract with Apple, which covers through 2015. Sprint says that although the approximate tripling of subsidies associated with the iPhone have caused a short-term loss, the retention factor of iPhone subscribers, the ability to attract new customers and the profitability of its data plans will help the company overcome the shortfall relatively quickly. The iPhone's launch on Sprint was the biggest one-day sales record in the company's history.

By Electronista Staff

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iPhone, sprint, mobile phones, iPhone 4, iPhone 4S