In its first quarter of offering Apple's iPhone, Sprint estimates the launch depressed wireless operating profits by $630-million - or nearly half.
From the FT's Lex blog
What happens when a second-tier player does business with the most valuable, wealthy, and influential company in the world? Something resembling Sprint Nextel's fourth-quarter results. The big boy - Apple - gets his generous chunk of profit right up front. The little guy gets his piece years down the road. Maybe.
In its first quarter selling iPhones, Sprint sold 1.8 million of them, and 750,000 of these went to customers new to the carrier. This led to a net gain of 161,000 customers taking long-term contracts, after three straight quarters of net losses (Sprint is still bleeding customers it picked up in the Nextel deal). And revenue per contract customer hopped up by a couple of per cent.
Operationally, the iPhone has a tonic effect. Financially, it is bitter medicine. Sprint estimates the launch depressed wireless operating profits by $630-million - or nearly half. That is $350 in losses per device sold. And that figure is adjusted for added revenue and other factors; the actual subsidy Sprint pays to Apple is still higher.
This makes it clear why Sprint estimated last year that it would be 2015 before the iPhone would have a positive impact on profits. Investors also know from AT&T's results that iPhone pressure on margins is persistent. That company, which has had the iPhone since 2007, saw wireless margins dip to 15 per cent in the fourth quarter, when the iPhone 4s launched, from 23 per cent a year before.
Of course it is possible, given benign assumptions about customer additions, retention rates, price pressure, spectrum costs and discount rates, for carriers to show that the net present value of offering the iPhone is positive. But in an industry as fluid and competitive as wireless, 2015 is a long way away. Apple, on the other hand, needs to only worry about returns on cash it has already earned.