Update: Our apologies. In our haste we misread the blurb from Dan Hesse. The subsidy Sprint pays Apple is not $200 more than AT&T pays. Rather, the subsidy it pays to Apple is $200 more it pays for other devices.
Shortly before Apple officially announced the iPhone 4S, a report emerged claiming that Sprint was going all-in with the iPhone and had committed to purchasing 30.5 million units over a 4-year period regardless of whether they could sell them or not.
While such a move arguably seems desperate, Sprint CEO Dan Hesse had previously made no bones about the fact that the majority of Sprint customers who leave for other carriers do so because Sprint doesn’t carry the iPhone.
When Hesse brought the proposed iPhone plan to the board, not every one was keen on the idea. It was a huge commitment from Sprint and some board members even questioned how much much longer the iPhone would remain the premier smartphone on the market. But in the end, the board approved the deal. The reasoning was that there was no other way for Sprint to realistically keep up with AT&T and Verizon without the iPhone on board.
And so far, iPhone sales on Sprint seem to be off to a promising start. When the iPhone 4S first went on sale nearly two weeks ago, it took only 12 hours for Apple’s smartphone to set Sprint’s one-day sales record for a specific device. In short, the iPhone 4S quickly surpassed even Sprint’s expectations and arguably reaffirmed Sprint’s bold deal with Apple. A quick perusal of Sprint’s online store shows that the 16GB iPhone 4S is still out of stock while the 32GB is strapped with a 2 week shipping time.
In any event, Sprint earlier today released its earnings for the quarter and though the iPhone 4S was released after the reported quarter ended, the company did add some detail to its dealings with Apple.
Again, Sprint highlighted the popularity of the device.
The launch of this iconic device resulted in Sprint’s best ever day of sales in retail, web and telesales for a device family in Sprint history. The response to this device by current and new customers has surpassed initial expectations. The iPhone is expected to be accretive for Sprint, and iPhone users are expected to be among Sprint’s most profitable customers.
Sprint CEO Dan Hesse further explained that their deal with Apple will costs them about $15 billion over 4 years and that the company needs $7 billion in new financing to compensate for their cash shortfall on account of the aforementioned iPhone deal.
“If we want to maintain a cash balance as high as $2 billion minimum at any point in time, we would want to extend the maturities of $4 billion that come due in 2012 and 2013 and raise between $1 billion to $3 billion, primarily from vendor financing,” Chief Executive Dan Hesse told Reuters on Wednesday.
But what’s particularly interesting is that the subsidies Sprint is paying Apple for the iPhone is 40% higher than what other carriers pay. Put differently, Sprint pays Apple $200 more per device than any other carrier. I suppose that when Apple has leverage, they’re not afraid to use it.
Still, Sprint remains confident that the deal will prove to be fortuitous to the extent it will attract new subscribers and prevent current subscribers from defecting.
“[The] iPhone has an expensive contract but is worth every penny,” Hesse said.
Hesse previously explained that Sprint wouldn’t see a substantive return on its investment until 2014.