Sprint needed the iPhone badly. The company was hemorrhaging money and was finding it increasingly difficult, if not impossible, to compete with the likes of AT&T and Verizon who not only boast more subscribers, but also carried the marquee smartphone on the market – the iPhone.
It’s well established that Apple’s iPhone fundamentally changed the dynamics of the cell phone industry. Whereas carriers used to wield unwavering control, the advent of the iPhone returned some of that power back to manufacturers.
In short, the iPhone was the first smartphone that was bigger than any one specific carrier. The iPhone, in many ways, was the first smartphone appealing enough to actually persuade millions and millions of users to switch carriers. So with new subscriber growth being one of the metrics by which investors measure carriers, the iPhone is an unparalleled carrot to attract new subscribers, and just as importantly, keep current ones.
For years, the iPhone remained an AT&T exclusive, only opening up to Verizon as well this past Winter. To that end, Sprint CEO Dan Hesse has previously claimed that the lack of an iPhone was the primary reason why Sprint customers were choosing to switch carriers.
The writing was on the wall – Sprint needed the iPhone.
And so, Sprint went out and got the iPhone, reportedly agreeing to purchase upwards of 30.5 million units over a 4-year period regardless of whether or not they could sell them to end users. The rumored deal showcases the leverage Apple now wields thanks to its wildly popular iPhone, and as many outlets described, Sprint was effectively betting the entire company on the assumption that Apple’s iPhone could turn its financial fortunes around.
And so far, Sprint seems to have guessed right.
The iPhone 4S, in just 12 hours since first going on sale a few weeks ago, quickly became the hottest selling device in Sprint history.
What’s more, Dan Hesse recently sat down for an interview with Forbes and explained that though Sprint pays up to $200 more in iPhone subsidies than it does for other smartphones, the iPhone is well worth the investment. Further, Hesse explained that Apple’s iPhone is more data efficient than competing smartphones. As a result, Hesse said that Sprint will have no problem keeping its unlimited iPhone data plan in effect for the foreseeable future.. You might remember that AT&T had previously offered unlimited iPhone data plans before switching to a tiered system as a means to prevent bandwidth hogs from slowing down the network for everyone else.
“One of the beauties of carrying the iPhone is it extends the period of time and increases the likelihood of us maintaining unlimited data longer because it uses our network so efficiently,” said Hesse.
There are two main reasons why the iPhone rides lightly on networks, according to Hesse. The first is that the device is good at hunting for Wi-Fi connections and notifying users when Wi-Fi is available. That helps carriers like Sprint offload data traffic from their networks.
The iPhone’s other strength stems from Apple’s tight control over iPhone applications. Since Apple makes iPhone apps meet network efficiency thresholds, iPhone apps tend to “ping” networks less often than other mobile operating systems do. Cutting down on app “noise” lets carriers operate their networks in a more productive and ultimately more profitable manner. “It’s almost like a Prius,” said Hesse, comparing the iPhone to Toyota’s fuel-efficient car.
AT&T has had a 4+ year head start with the iPhone. It’s no overstatement to say that Sprint has a lot of ground to make up and it’s therefore pinning most of its hopes on the idea that unlimited data plans will help attract new customers.
“Our main [marketing] message is around unlimited,” said Hesse. “It is what makes us distinct.”
Sprint recently released its earnings statement for the past quarter where it noted that their deal with Apple will cost them $15 billion over a 4 year period. To accommodate for the resulting cash shortfall, Sprint said that will need to secure $7 billion in financing. Still, Sprint is confident that the iPhone will more than make up for it in the future.
Analysts have calculated that Sprint will need to sell 6 million iPhones a year – or about 1.5 per quarter – to make its deal with Apple worthwhile. Once Sprint gets a full quarter of iPhone sales under its belt, we’ll have a better gauge as to the wisdom behind their huge bet-the-farm type deal to carry the iPhone.