Sprint: iPhone deal 'worth every penny,' but there's a big financial hit

Sprint: iPhone deal 'worth every penny,' but there's a big financial hit

Summary: Sprint likens the iPhone to an expensive baseball player that can fill the stands of a high-priced stadium.

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Sprint CEO Dan Hesse made his case for bringing the Apple iPhone to the carrier and argued that a short-term financial hit in the years ahead is worth the long-term gain. Sure, the iPhone has a pricey contract, but the device will bring customers to Sprint and become profitable faster.

Hesse likened the iPhone to an expensive baseball player that can fill the stands of a high-priced stadium. "iPhone has an expensive contract but he's worth every penny," said Hesse, speaking on a conference call with analysts after Sprint's third quarter earnings report. Also: CNET: Sprint loss narrows as customer growth doubles

However, the iPhone is pricey. Sprint CFO Joe Euteneuer detailed how more iPhone additions translate into a bigger hit on the bottom line. "We expect the combination of both increased volume and rate impacts associated with the iPhone to result in a reduction in fourth quarter OIBDA (Operating Income Before Depreciation And Amortization (OIBDA) of between $500 million and $700 million," said Euteneuer.

In other words, Sprint will lose money on the iPhone through fiscal 2015. OIBDA will be hit by $900 million in 2012 and $1.2 billion in 2013. Then, iPhone customer margin will turn the Apple deal profitable.

"Our ultimate spend with Apple to depend on many variables including anticipated rate of future subscriber growth, number of different devices offered and the cost of devices offered. We anticipate outperforming the current contract minimum commitment of $15.5 billion, for the iPhone, over the four-year period," said Euteneuer.

Is it worth it? Hesse certainly thinks so.

Hesse defended the deal with Apple. He said:

We expect that customer lifetime value for the iPhone customer to be at least 50%, yes, at least 50% greater than a typical smartphone user. Driven primarily by more efficient use of our network and lower churn. In addition, not reflected in this chart, is the upside of more, new revenue to spring, new fans offset the fixed cost of our stadium, if you will, because we expect the iPhone to generate a significantly higher number of new users to Sprint.

Hesse also shot down the perception that the iPhone will hurt Sprint's network.

There is a misperception that our launch of the iPhone will increase the load on Sprint 3G network and require us to spend more 3G capital. The reverse is true. IPhone users are expected to use significantly less data than the typical user of a dual-mode, 3G, 4G device. Even adjusting for more total new customers being added to the network, we believe will put less load on our 3G network than they would have if we did not carry the iPhone. We're pleased to announce that we have signed a nonbinding cooperation agreement with Clearwire, to work together on the technical specifications of the Clearwire LTE network and to ensure a superb customer experience for Sprint customers on the Clearwire LTE network.

In other words, Sprint's network can handle the load. What's unclear is whether Sprint can handle the financial load.

Topics: Telcos, Hardware, iPhone, Mobility, Networking, Smartphones

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20 comments
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  • RE: Sprint: iPhone deal 'worth every penny,' but there's a big financial hit

    Please cancel the iPhone contract Sprint! Because at the current rate, as a customer I'm getting cheesed that I'm having to pay for the iPhones. I (and other Sprint customers) have lost most of our perks so iPhone users can get subsidized. Way to go Sprint. I'm outta here as soon as possible. Sprint has been pulling a Netflix this last 6 months, but has been doing it slowly enough to slide under the radar.
    admiraljkb
    • RE: Sprint: iPhone deal 'worth every penny,' but there's a big financial hit

      @admiraljkb, do you have any understanding of this at all? It doesn't seem so.
      melgross
      • RE: Sprint: iPhone deal 'worth every penny,' but there's a big financial hit

        @melgross well... I am guessing you have no idea what admiraljkb was talking about then. Over the last several months sprint cancelled several free goodies for those on the family plans with several smartphones.
        pupkin_z
      • RE: Sprint: iPhone deal 'worth every penny,' but there's a big financial hit

        @melgross

        OK, that little rant only made sense to fellow Sprint users. Sorry. I jumped to Sprint from ATT due to spotty data network performance, and for an EVO4g which had good performance and fast data network on 4g and I'm in a 4g area. While I was with ATT I had yearly upgrades due to the corporate plan I was on. When I switched to Sprint, my contract still allowed yearly upgrades and other perks, but I was mostly concerned about the yearly upgrades. Over the last 12 months, they've been canceling the perks and unilaterally altering the agreement as "a cost saving measure to still offer good service to all." Now we find out it was to save up cash to spend on iPhones instead of keeping existing customers happy. I wasn't happy that Sprint has continually been modifying my contract in their favor, but now I'm not happy about being lied to.
        admiraljkb
    • What are you going on about?

      @admiraljkb
      I'm a Sprint customer and I don't see what you are going on about. I'm not paying more because the iPhone is there, Sprint is just reallocating my money. I have the same service at the same cost so what is it I am supposed to have lost?
      use_what_works_4_U
      • RE: Sprint: iPhone deal 'worth every penny,' but there's a big financial hit

        @macadam

        The biggest thing I lost so Sprint could get an iPhone was my subsidized yearly phone upgrades. I had them prior to switching to Sprint with ATT, and I moved to Sprint because they also let me do that, and ATT's data network was in trouble last year. Sprint then altered the bargain, and in a Darth Vader voice are telling me "pray I don't alter it further". :)

        Realistically, this iPhone deal is so huge, that if ONE thing goes wrong, then instead of turning a profit again by 2015, Sprint will be bankrupt instead. What if Apple makes a misstep or two and iPhone doesn't sell well? Hopefully there is a sales clause in there for Sprint to get their money back out of Apple due to non-performance.
        admiraljkb
      • RE: Sprint: iPhone deal 'worth every penny,' but there's a big financial hit

        @macadam Sprint isn't the only one but I am not sure you can say specifically it's due to the iPhone. I have been with AT&T for years and just this year lost my yearly upgrade option, now it's every 18 months.
        non-biased
    • RE: Sprint: iPhone deal 'worth every penny,' but there's a big financial hit

      @admiraljkb LOL that what you get for getting a junk iphone. Should have gotten a windows phone 7.5 mango phone way better OS and stable than iphone 4S.
      obamasucks2011
      • RE: Sprint: iPhone deal 'worth every penny,' but there's a big financial hit

        @obamasucks2011

        I've got an EVO4g dude. I have no doubt Winmobe7.5 is better than 4S, but that's not my bag. I'm too much of a power user.
        admiraljkb
    • RE: Sprint: iPhone deal 'worth every penny,' but there's a big financial hit

      [i]I'm getting cheesed that I'm having to pay for the iPhones. I (and other Sprint customers) have lost most of our perks so iPhone users can get subsidized. Way to go Sprint. I'm outta here as soon as possible.[/i]

      @admiraljkb

      Well where ya gonna go? They all do it.

      I mean, you could go T-Mobile but how long do you think they'll last?
      ScorpioBlue
      • RE: Sprint: iPhone deal 'worth every penny,' but there's a big financial hit

        @ScorpioBlue
        +1
        rice2999
  • RE: Sprint: iPhone deal 'worth every penny,' but there's a big financial hit

    I heard many complaints of sprint users having problems with this junk iphone 4S. LOL love it. should have gotten Winows phone 7.5 Mango phones way better OS and Fast and more stable
    obamasucks2011
    • Hard to take your comments seriously...

      "@obamasucks2011" with your handle and unsubstantiated pan of the iPhone, it's really hard to take your comments seriously. Do you post just to see your "name" for supposed political gain? Do you just hate Apple so much you just have to bash their products? No, I don't own an iPhone. No, I don't own any Apple computer products. I do have several Windows PCs, and do make my living primarily supporting Windows environments. To be taken seriously on an industry site like zdnet.net (OK, I know there is some humor in that!), you have to act somewhat professionally!
      randysmith9
      • Save your typing fingers

        you're dealing with a Repugnitard!

        @randysmith@...
        GoPower
      • And he's shilling for Mango

        A phone even the Microsoft used car salesman can't sell.
        ScorpioBlue
      • RE: Sprint: iPhone deal 'worth every penny,' but there's a big financial hit

        @randysmith@... I don't take him seriously as he comes across as a small minded hater but based on his handle he's got at least one thing right :-)
        non-biased
  • RE: Sprint: iPhone deal 'worth every penny,' but there's a big financial hit

    Everytime I see "expect", "billons", "CEO" and "CFO" on the same page I think of Enron...
    SinfoCOMAR
    • RE: Sprint: iPhone deal 'worth every penny,' but there's a big financial hit

      @SinfoCOMAR

      Good point. It does have that kind of feel to it. I just wish I wasn't with Sprint right now, and then it'd be more entertaining...
      admiraljkb
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