|Maybe you did not read the link... Was the iPhone worth it for Sprint?|
Did Sprint Nextel really need the iPhone?
That's what one Wall Street analyst is asking after looking at the company's year-end performance, which Sprint disclosed in a filing with the Securities and Exchange Commission yesterday. The results show that a bulk of Sprint's customers would have joined the carrier regardless of whether the iPhone was available, and only a fraction of the customers would have left the service for the iPhone elsewhere. Sprint began carrying the iPhone in October.
The numbers, while still early, fly in the face of Sprint's repeated comments that the iPhone is bringing a tangible benefit to the company, justifying the massive bet that executives have placed on it and Apple. Sprint CEO Dan Hesse has said he believes the iPhone both brings in new customers and reduce customer turnover, or churn, all while generating higher service revenue.
The data from Sprint's filing, however, suggest the company wouldn't have fared as badly, and wouldn't have had to bear the expense of carrying the iPhone.
"While these results are early in the game, and fourth-quarter handset upgrades will generate a churn benefit down the line, the initial results certainly don't increase our confidence that the iPhone will be accretive to Sprint," Barclays analyst James Ratcliffe said in a note.
In the fourth quarter, the company posted a loss of $980 million, narrower than its year-earlier loss, but still significant. Much of that bottom-line hit came from subsidies paid out to Apple, which ensure the iPhone is sold at its more reasonable $200 price for the base model.
While initially lauded as a coup for Sprint, there has been some recent backlash over fears that the company paid too high a price for its deal with Apple. One analyst suggested the move to LTE and the cost of carrying the iPhone could tip the company into bankruptcy. Hesse has gone out and defended the iPhone deal as a smart move for the company.
Sprint isn't the only one affected. AT&T and Verizon both reported losses in the fourth quarter, partly due to the high cost that comes with carrying the iPhone. Those companies, however, are in a far better financial position than Sprint.
Sprint has a number of costs to bear over the next few years. Beyond the expense of the iPhone, the company is building its own 4G LTE network, and may need to provide further funding to Clearwire, which supplies the current 4G WiMax network. Sprint has warned investors that the company would have to endure a trough with results over the next year or so. Many on Wall Street wonder if it has enough staying power to reach the turnaround phase of the plan.