Sprint CEO returns $3.25M in pay after shareholders deride Apple deal
In an effort to placate shareholders upset over Sprint's iPhone deal with Apple, the company's chief executive has returned more than $3.25 million in compensation.
The move by Sprint CEO Dan Hesse was revealed this week in a filing with the U.S. Securities and Exchange Commission, and highlighted by the Kansas City Business Journal. Shareholders had expressed unhappiness that Sprint had excluded the financial effect of carrying Apple's iPhone when calculating employee bonuses.
"I do not want, nor does our Compensation Committee want, to penalize Sprint employees for the company's investment with Apple," Hesse said in a letter announcing his decision. "I'm hopeful these actions will allow the company to remain focused on delivering the best overall customer experience in the wireless industry, which is what will serve the company best in the long run."
Last year, it was said that Sprint had agreed to purchase 30.5 million iPhones from Apple for nearly $20 billion over the next four years. The deal was characterized by The Wall Street Journal as a play that "bet the company" on the iPhone.
Hesse reportedly told his company's board of directors in August that Sprint will likely lose money on the deal with Apple until 2014, but he is expecting that the addition of the iPhone to Sprint's lineup will help turn the carrier's struggles around.
Sprint announced last month that it sold 1.5 million iPhones in the first quarter of calendar 2012, with 44 percent of those sales going to new customers. For the iPhone 4S launch window, Sprint sold 1.8 million iPhones, and 40 percent of those went to subscribers who were new to the company.
Hesse defended his company's deal with Apple in March, saying that users of the iPhone are "more profitable" on a whole when compared with users of other devices, like those running Google's Android platform. Besides having a low churn rate, iPhone users also use less data on average than other smartphone users, Hesse said.
"So from a cost point of view and a customer lifetime value perspective, [iPhone users] are more profitable than the average smartphone customer," Hesse said.
The move by Sprint CEO Dan Hesse was revealed this week in a filing with the U.S. Securities and Exchange Commission, and highlighted by the Kansas City Business Journal. Shareholders had expressed unhappiness that Sprint had excluded the financial effect of carrying Apple's iPhone when calculating employee bonuses.
"I do not want, nor does our Compensation Committee want, to penalize Sprint employees for the company's investment with Apple," Hesse said in a letter announcing his decision. "I'm hopeful these actions will allow the company to remain focused on delivering the best overall customer experience in the wireless industry, which is what will serve the company best in the long run."
Last year, it was said that Sprint had agreed to purchase 30.5 million iPhones from Apple for nearly $20 billion over the next four years. The deal was characterized by The Wall Street Journal as a play that "bet the company" on the iPhone.
Hesse reportedly told his company's board of directors in August that Sprint will likely lose money on the deal with Apple until 2014, but he is expecting that the addition of the iPhone to Sprint's lineup will help turn the carrier's struggles around.
Sprint announced last month that it sold 1.5 million iPhones in the first quarter of calendar 2012, with 44 percent of those sales going to new customers. For the iPhone 4S launch window, Sprint sold 1.8 million iPhones, and 40 percent of those went to subscribers who were new to the company.
Hesse defended his company's deal with Apple in March, saying that users of the iPhone are "more profitable" on a whole when compared with users of other devices, like those running Google's Android platform. Besides having a low churn rate, iPhone users also use less data on average than other smartphone users, Hesse said.
"So from a cost point of view and a customer lifetime value perspective, [iPhone users] are more profitable than the average smartphone customer," Hesse said.
Comments
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Besides having a low churn rate, iPhone users also use less data on average than other smartphone users, Hesse said.
iPhone users use less data but they somehow make up 95% of all web traffic? I'm curious how this adds up.
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Originally Posted by brutus009
iPhone users use less data but they somehow make up 95% of all web traffic? I'm curious how this adds up.
I'd imagine that it's because iPhone users probably tend to use Wi-Fi for a lot of their web browsing. I'd guess that over 90% of my data usage on my iPhone is via Wi-Fi, if not more.
As for the rest, it shows a clear short term view by the shareholders. If Hesse is correct, then the investment in iPhones will pay off because iPhone customers are more profitable for the carrier. It is not surprising that the benefit is in the future - that's the nature of the mobile business in the U.S. The carrier provides a large subsidy on new phones so they are in the hole at the start and only recover that investment over time. Note how AT&T's profits dropped temporarily when the iPhone was first introduced. If the investors don't understand the nature of the business, maybe they should invest in a different stock.
Good luck with selling 30 million iPhones in 4 years, if during these blow-out quarters you only sold 5% of that...
Isn't it funny how struggling companies rush to pour money into Apple's bursting coffers?
Hang on Mr, CEO. I'm one person who will be going back Sprint as soon as my contract with ATT is over.
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Originally Posted by jragosta
It's interesting how Hesse's statements disagree with AT&T's. AT&T claims that iPhone users use a lot of data while Sprint says they do not.
As for the rest, it shows a clear short term view by the shareholders. If Hesse is correct, then the investment in iPhones will pay off because iPhone customers are more profitable for the carrier. It is not surprising that the benefit is in the future - that's the nature of the mobile business in the U.S. The carrier provides a large subsidy on new phones so they are in the hole at the start and only recover that investment over time. Note how AT&T's profits dropped temporarily when the iPhone was first introduced. If the investors don't understand the nature of the business, maybe they should invest in a different stock.
What's the point of basing pay on profitability if you're going to change the rules after the fact? Surely this isn't the first long term supplier agreement Sprint ever signed? If you wanted to exclude long term supplier agreements from your calculations, shouldn't that have been stipulated up front?
Just another example of pigs at the trough hoping nobody notices they're fleecing the owners. No different than government employees voting yes on their own generous pay rises.
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Originally Posted by brutus009
iPhone users use less data but they somehow make up 95% of all web traffic? I'm curious how this adds up.
I imagine one way it adds up is that Sprint is new to the iPhone game, so the users they've got now may in fact use a lot less data service.
That being said, I think the wifi thing plays a big part too. In previous posts, I mentioned that a lot of low income people I know have Android phones because they can get them on prepaid mobile plans. For many of those people, the Android phone is their ONLY internet access, they don't have internet access at home and so don't have wifi to connect to when at home. Everyone I personally know that has an iPhone also has wifi at home that they use with their phone.
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Originally Posted by DrDoppio
Good luck with selling 30 million iPhones in 4 years, if during these blow-out quarters you only sold 5% of that...
Well they've sold 3.3 million in the first two quarters since they got it, which is 11%.
You're missing the point.
Hesse earned the bonus based on the details of his contract. The money was his. Yet he voluntarily returned it to try to appease his critics.
Personally, I'd have ignored them and continued to run the company the way I was hired to do.
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Originally Posted by Tildeboy
I imagine one way it adds up is that Sprint is new to the iPhone game, so the users they've got now may in fact use a lot less data service.
That being said, I think the wifi thing plays a big part too. In previous posts, I mentioned that a lot of low income people I know have Android phones because they can get them on prepaid mobile plans. For many of those people, the Android phone is their ONLY internet access, they don't have internet access at home and so don't have wifi to connect to when at home. Everyone I personally know that has an iPhone also has wifi at home that they use with their phone.
iphone users try to connect to wifi whenever they can. I'm on the unlimited plan on Verizon (grandfathered) and I barely use 250MB of 3G data a month.
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Originally Posted by cameronj
Well they've sold 3.3 million in the first two quarters since they got it, which is 11%.
It is only 16 quarters total. That is 12.5% of the quarters...
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Originally Posted by Wovel
It is only 16 quarters total. That is 12.5% of the quarters...
Which means Sprint is only a little behind the mark for iPhone sales. 30M over 16 quarters would mean selling 1.875M phones per quarter. That's an achievable goal.
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Originally Posted by DrDoppio
Good luck with selling 30 million iPhones in 4 years, if during these blow-out quarters you only sold 5% of that...
iPhone sales are steadily increasing on all carriers. Even if Sprint sales stayed constant at 1.8 million per quarter, which is the latest number, the total after 14 more quarters would reach 28.5 million. If you project any increase at all, 30 million looks like a safe bet.
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Originally Posted by jungmark
iphone users try to connect to wifi whenever they can. I'm on the unlimited plan on Verizon (grandfathered) and I barely use 250MB of 3G data a month.
Exact same thing here. I generally use 200-250 of 3G. But Im $29 monthly unlimited on Verizon and look forward to unlimited 4G/LTE. If it werent for that I'd drop to a cheaper plan.
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Originally Posted by SSquirrel
Which means Sprint is only a little behind the mark for iPhone sales. 30M over 16 quarters would mean selling 1.875M phones per quarter. That's an achievable goal.
Only if sales increase. With half a year before the new iPhone, it doesn't look too certain.
Putting his money where his mouth is. That's the kind of leadership this country needs!
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Originally Posted by DrDoppio
Only if sales increase. With half a year before the new iPhone, it doesn't look too certain.
... and then they will sell [on edit - 12 million] units of the new iPhones over 5 quarters and Hesse will look like a genius.
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Originally Posted by DrDoppio
Only if sales increase. With half a year before the new iPhone, it doesn't look too certain.
Sales increase with each new iPhone launch, so it looks more certain than otherwise that they will continue to and that Sprint will meet or exceed their commitments.
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Originally Posted by jragosta
It's interesting how Hesse's statements disagree with AT&T's. AT&T claims that iPhone users use a lot of data while Sprint says they do not.
I think this is partly explained by Sprint's network infrastructure. Apple's iPhone is connecting to Sprint's relatively pokey EV-DO (3G) network, allegedly the slowest of all four major network's 3G networks. Many of Sprint's other smartphones connect to their speedier, well-deployed 4G WiMax network, so those devices are using up a lot more data (Sprint is also deploying a 4G LTE network to replace the WiMax one).
AT&T has been a relatively latecomer to the 4G game; they have a handful of LTE markets and most of the rest of the "4G" is actually HSPA+ which is slightly faster than their 3G HSPA network. Since the LTE coverage map is so new and limited in terms of market deployment, most of AT&T's smartphones are still on 3G.
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Originally Posted by Wovel
It is only 16 quarters total. That is 12.5% of the quarters...
So you're saying they're right on pace? How terrible.