iPhone brings mixed blessings to Sprint
Apple device boosts postpaid user base by 720,000, but high subsidies help to increase losses, along with 4G transition
Published: 8 February, 2012
READ MORE: Financial | US | Sprint Nextel (USA) | Infrastructure | iPhone | LTE
Increased subsidy bills after launching the iPhone, as well as 4G build-out costs, saw the losses piling up in Sprint's fourth quarter, but there were positive signs as the Apple device boosted the flagging postpaid business.
Sprint made a major commitment to the Apple handset last fall, despite coming late to the market after the big two carriers. It sold 1.8m iPhones in the quarter, far fewer than Verizon's 4.3m or AT&T's 7.5m, but 40% of those did go to new customers, which will be important to a carrier increasingly plagued by defections at the postpaid high end - a situation which will only be worsened by the hiatus period between defocusing on WiMAX and offering a full LTE service. Sprint has already said it will not launch any new WiMAX smartphones, even though it is unlikely to have broad LTE coverage before 2013.
In that transition phase, the iPhone could be important in attracting or retaining contract customers even on the CDMA network - Verizon, with its heavily marketed LTE services, still saw the largest percentage of its smartphone activations in Q411 going to the 3G-only Apple device. Sprint added a net total of 1.6m new subscribers during the quarter to reach a total of 55m mobile customers, its highest level ever. The additions were its highest in six years, though the drift to the lower margin markets has not been seriously reversed even by the Apple strategy. Most of the new additions came from wholesale and affiliate partners, "a result of growth in MVNOs reselling prepaid services". However, Sprint did gain 161,000 postpaid users during the quarter, up from 58,000 in Q410 and some quarters in 2009 when it actually suffered net losses in contract subscribers. It now has a total of 33m contract users.
Verizon and AT&T have already complained about the impact of high iPhone subsidies on margins, and Sprint experienced the same effect. Its net subsidy grew to about $1.7bn, compared to around $1.2bn in the year-ago period, largely as a result of the iPhone launch. The cellco said that, based on its internal estimates, the combined impact of launching the iPhone and its ongoing Network Vision modernization project reduced its adjusted operating income before depreciation and amortization (OIBDA) by around 8.8 percentage points, to 10.8%.
In a statement, CEO Dan Hesse said: "Our strong fourth quarter performance illustrates the power of matching iconic devices like the iPhone with our simple, unlimited plans and industry leading customer experience."
Overall, the company's net loss widened by 40% year-on-year to $1.3bn, on operating revenue up 5% to $8.7bn. It said that a revenue increase from its mobile business was offset by a reduction in fixed line revenue. Wireless retail service revenue was up 7% year-on-year to $6.9bn, riding a growth in postpaid ARPU as well as the rise in prepaid users, particularly since new market launches by Sprint's pay-as-you-go brands, Assurance Wireless and Virgin Mobile. These, however, were partially offset by lower prepaid ARPU.
The company noted a $135m impairment charge related to its investment in wholesale operator Clearwire.
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