Amidst plummeting earnings, Sprint for a long time watched helplessly as its subscribers left in droves for the iPhone, first to AT&T and then to Verizon. The iPhone affect on Sprint’s bottom line was hardly a secret, with CEO Dan Hesse acknowledging at an investor conference this past September that the iPhone, or lack thereof, was the main cause behind subscriber defection.
In short, Sprint needed the iPhone to stay viable, and Apple reportedly used Sprint’s desperation as leverage. According to reports that first surfaced back in early October, Sprint made an executive decision to bet the farm on the iPhone. What this entailed was Sprint committing to purchasing 30.5 million iPhones from Apple regardless of whether or not they’d be able to sell them.
Mr. Hesse told the board the carrier would have to agree to purchase at least 30.5 million iPhones over the next four years—a commitment of $20 billion at current rates—whether or not it could find people to buy them, according to people familiar with the matter.
Directors debated what they had just heard. Some worried the payoff would be too long in coming. One member questioned whether the multiyear deal might outlast the iPhone’s popularity. To sell that many iPhones, Sprint would have to double its rolls of contract customers, convert all of them to the Apple device or a combination of the two.
The board ultimately signed off on what the company internally called the “Sony” project, concluding Sprint couldn’t compete otherwise. Directors figured, “How can we pass this up? We have to have it,” the person familiar with the matter said.
And with iPhone’s costing about $200 more than Android smartphones on average – from carrier perspective – Sprint was betting big that the iPhone would not only keep current subscribers, but would attract new ones as well – thanks in part to its unlimited data plan.
And so far, Sprint’s gamble seems to be paying off.
Indeed, on the first day the iPhone 4S went on sale, it took just 12 hours for the iPhone to break Sprint’s one-day sales record for a specific device. Last week, Sprint released its earnings from its first full quarter with the iPhone under its belt, and while it’s still absorbing the losses from the subsidies it pays to Apple, the iPhone is doing its job to bring in new subscribers.
Specifically, Sprint sold 1.8 million iPhones during the holiday quarter, and of that total, 40% (720,000) were to new customers. With respect to all new customers, Sprint was able to rein in 1.6 million new subscribers. Putting everything into context, iPhone users accounted for 45% of all new subscribers, once again emphasizing the iPhone’s unique ability to lure customers into 2-year contracts. Notably, the number of new subscribers registered by Sprint last quarter was the company’s highest in over 6 years.
Sprint CEO Dan Hesse went so far as to single out the iPhone in the company’s press release.
“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,” Hesse said.
All told, Sprint reported a loss of $1.3 billion for the Q4 of 2011 ($0.43/share) and $2.9 billion for the entire fiscal year.