Sprint committed to $15.5B iPhone contract in 2011, expects to buy more

Posted:
in iPhone edited January 2014


Despite expecting a decline in wireless profits due to the high subsidy cost associated with carrying the iPhone, Sprint plans to exceed its $15.5 billion minimum purchase agreement with Apple and looks to make up for the profit loss with subscriber revenue.



In the Monday filing of Sprint's 10-K report for the 2011 fiscal year, it was revealed that the company is betting on subscriber dues to offset an expected 2012 deficit from the agreement with Apple, which called for a minimum order of around $15.5 billion worth of high-subsidy iPhones, according to Barron's.



Quote:

During 2011, the Company entered into a purchase commitment with Apple, Inc. to purchase a minimum number of smartphones, which on average, is expected to carry a higher subsidy per unit than other smartphones we sell.



Sprint's plan is to take a hit in profits early by purchasing and subsidizing iPhones, then reap the benefits yielded from subscribers with lucrative smartphone contracts. There is evidence that the strategy may be working, as the carrier sold 1.8 million iPhones over the holiday quarter, 40 percent of which were to new subscribers. In contrast, iPhone activations at the top two U.S. carriers Verizon and AT&T stood at 4.2 million and 7.6 million, respectively.



Carriers pay heavy subsidies to carry the iPhone, and Sprint is currently paying $450 for every unit sold with a two-year contract. On top of what the company calls an "instant savings," Sprint is the only carrier in the U.S. to offer unlimited data for any iPhone model.





Sprint's iPhone 4S contract agreement shows a hefty $450 subsidy. | Source: Sprint







The nation's third-largest mobile carrier was the last of the "big three" networks to get the iPhone, and only started selling the device in October, 2011 when the newest iPhone 4S was debuted. Combined launch-day sales of the iPhone 4S and last-generation iPhone 4 helped set a new one-day record for Sprint, and the product line continues to draw in new customers.



Quote:

We expect to incur expenses to attract new subscribers, improve subscriber retention and reduce churn, but there can be no assurance that our efforts will result in new subscribers or a lower rate of subscriber churn.



Previous reports called the iPhone agreement a "bet the company" move, and estimated that the telecom would have to put up $20 billion for rights to sell the popular Apple handset.



Apple's smartphone line is seen as a major sales catalyst for carriers, and Sprint CEO Dan Hesse was quoted as saying that not having the iPhone was the "number one reason customers churn" from his company to other mobile carriers.



Other carrier agree, as T-Mobile recently attributed the loss of some 700,000 subscribers to the iPhone, saying that those who switched networks did so primarily to buy an iPhone 4S. T-Mobile is the only major U.S. carrier that does not offer any model of Apple's handset.



[ View article on AppleInsider ]

Comments

  • Reply 1 of 11
    sflocalsflocal Posts: 5,741member
    It takes money to make money. Everyone wins.
  • Reply 2 of 11
    solipsismxsolipsismx Posts: 19,566member
    1) This is smart. With an expected LTE iPhone coming in 2013 and with Sprint switching their WiMAX to LTE their technical position in the market will become less of an issue. There 40% increase in subs should actually increase won't they get decent LTE coverage and the LTE iPhone is released.



    2) I wonder if the are getting the iPad 3 this year? I assume so. Note that just because it's expected to be "world mode" that doesn't mean it's a shoe in since the baseband for Verizon and Sprint will likely be flashed at the factory for each carrier and thus boxed separately.
  • Reply 3 of 11
    I am finally beginning to develop some admiration for this company!



    Now let's see if they stay the course for another few quarters, against what will be relentless Wall Street pressure.
  • Reply 4 of 11
    hmurchisonhmurchison Posts: 12,341member
    Quote:
    Originally Posted by SolipsismX View Post


    1) This is smart. With an expected LTE iPhone coming in 2013 and with Sprint switching their WiMAX to LTE their technical position in the market will become less of an issue. There 40% increase in subs should actually increase won't they get decent LTE coverage and the LTE iPhone is released.



    2) I wonder if the are getting the iPad 3 this year? I assume so. Note that just because it's expected to be "world mode" that doesn't mean it's a shoe in since the baseband for Verizon and Sprint will likely be flashed at the factory for each carrier and thus boxed separately.



    No need to flas for a carrier on non subsidized hardware. I hope Sprint gets the iPad
  • Reply 5 of 11
    solipsismxsolipsismx Posts: 19,566member
    Quote:
    Originally Posted by hmurchison View Post


    No need to flash for a carrier on non subsidized hardware. I hope Sprint gets the iPad



    So where does the carrier flash for that network happen? At the store when you buy it? When you get home via iTunes?
  • Reply 6 of 11
    This site beginning of the turnaround. This is why I bought a shipload of stock. I do not ever want to look at a company down, before a turnaround, and miss an opportunity again..... like I did with >$10 apple stock!!!
  • Reply 7 of 11
    I plan on rewarding Sprint by switching to them when the release of iPhone 5.
  • Reply 8 of 11
    tylerk36tylerk36 Posts: 1,037member
    When I think of Sprint I imagine a 400 pound line backer sprinting right over a little skinny guy then saying sorry it was your fault. Bye bye. Sprint has screwed people over for so long it is actually a miracle that they have survived this long. The iPhone must have helped keep them afloat.
  • Reply 9 of 11
    What's going to be fun to watch is when one of these huge technology investments fails due to some other product coming out, and billions of dollars will be lost.



    Apple could probably eat an iPhone launch failure but it will definitely hurt them. I think they do a really good job of adjusting supply, but if there were to be several million iPhones unsold it would be stunning.
  • Reply 10 of 11
    Quote:
    Originally Posted by Goldenclaw View Post


    Apple could probably eat an iPhone launch failure but it will definitely hurt them. I think they do a really good job of adjusting supply, but if there were to be several million iPhones unsold it would be stunning.



    I'm trying to figure out where you're getting anything from anywhere that implies there's the possibility of an iPhone launch failure?
  • Reply 11 of 11
    Quote:
    Originally Posted by Goldenclaw View Post


    What's going to be fun to watch is when one of these huge technology investments fails due to some other product coming out, and billions of dollars will be lost.



    Apple could probably eat an iPhone launch failure but it will definitely hurt them. I think they do a really good job of adjusting supply, but if there were to be several million iPhones unsold it would be stunning.



    Yes. And if pigs could fly that would be amazing too!
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