Sprint sticks to unlimited as iPhone squeezes profit
LTE costs, heavy subsidies and iDEN depreciation combine to double the US cellco's first quarter loss to $863m
Published: 25 April, 2012
Sprint turned in another quarter burdened with the costs of LTE upgrades and iPhone subsidies, and despite its much vaunted unlimited data plans, it only sold 1.5m Apple smartphones, compared to 3.2m at Verizon and 4.3m at AT&T.
Of course, Sprint is a smaller carrier, but it has entered the iPhone game late - at the same time as many other, even smaller US operators - and has committed huge sums to subsidies. Its main competitive proposition lies in clinging to all-you-can-eat data plans, as its rivals move to tiered tariffs, and it insists it will stick to this strategy for LTE too.
However, the Apple device is a factor in the slow improvement in Sprint's ability to attract new postpaid users, after years of defections - 44% of its iPhones went to new customers. The operator announced 1.1m net subscriber additions in the quarter, though most were via wholesale (785,000) and prepaid (870,000) units. In the postpaid segment, it suffered its habitual losses, though these are far more clearly attributable to the winding down of the legacy iDEN service, whereas in past years poor CDMA service and support were also contributors. The CDMA contract base, taken alone, did gain 263,000 net new users, offsetting the loss of 455,000 customers from the legacy iDEN postpaid service. Sprint's total base stood at 56m at the end of March.
All that contributed to a 5% year-on-year rise in revenues, to $8.7bn, but the carrier doubled its year-ago loss, going $863m into the red. That was mainly because of accelerated depreciation related to the expected shutdown of iDEN, while there was a one-time net benefit of $170m related to the ending of the network hosting deal with LightSquared. Another factor was the cost of subsidizing new handset sales, which leapt from $1.1bn in the year-ago period, to $1.6bn, mainly because of the launch of the iPhone.
CEO Dan Hesse sought to justify those costs on the earnings call, saying: "A huge percentage of our gross adds are iPhones, even though it's a 3G device and it's competing head-to-head with 4G devices." He would not be drawn on when an LTE iPhone might be expected, or whether it would support Sprint's spectrum bands from day one, though he did say: "Our expectation is that we will all get the same device at the same time." Apple does not have a track record of supporting large numbers of frequency combinations from the first launch of new devices - it still does not support T-Mobile USA's 3G band, and its iPad HD recently ran into trouble in Australia for advertising 4G capabilities, when it does not ride on the country's 1.8GHz LTE band.
He did say he expected to retain unlimited data plans when the 4G iPhone does arrive, commenting: "That's our distinctive differentiator." He added that iPhone plus unlimited was "a marriage made in heaven. We're clearly attracting customers from our competitors."