23 Comments

Summary:

Sprint is said to betting the farm on the iPhone. On paper its decision to commit almost $20 billion for the chance to sell iPhone 5 makes no sense. However, it is not such a crazy move for a company bleeding customers to rivals.

danhesseinanad

The word on the street is that Sprint is betting the farm on an exclusive for the iPhone 5. It will commit almost $20 billion to Apple for 30.5 million iPhones and it won’t even start to make money till 2014. Crazy? Yes and no!

Apple has to love this deal–it basically ensures a nice revenue stream for them, even if the world goes into recession and demand for mobile phones stalls. Second, it takes away some of the Android momentum at one carrier where Android has done well. (I know T-Mobile wants an iPhone too, and too bad they are not getting it.) Now for Sprint, I agree there are risks, but they are calculated risks. The exclusivity of iPhone 5 to Sprint is what reduces the risk around this arrangement.

For starters, globally, the average revenue per user for iPhone is about 1.5 to 2 times the average ARPU for all other phones. The numbers are better in the U.S. On an average, in the U.S., average revenue per user for iPhone is about $90 a month, according to Chetan Sharma, principal at Chetan Sharma Consulting. That works out to about $1,080 a year.

Now if  Sprint manages to match Verizon’s performance (it added 2.2 million iPhones during the first two months of the launch of the iPhone 4) during the first six months and another million iPhone users in the next six months, it can attract about 3 million iPhone customers to its roster. I am presuming these will be new customers who would switch to Sprint because of the “exclusive” availability of the device on the Sprint network, or they are fed up with AT&T or Verizon.

That works out to about $3.2 billion in revenues. And given that analysts estimate Sprint to clock in revenues of around $34 billion in 2012, what we are talking about a nice 10 percent bump in revenues for the company. The presence of the new iPhone would also reduce the churn on Sprint’s network and thus would provide the much-needed stability to their revenue stream.

So as I said –crazy yes, but not completely loco!

  1. I agree. As you see when it comes to media. Many want attention and usually speak on the negative. I believe the deal will work in both favors because iphones will sell. Sprint will sell even more especially if they keep their unlimited plan.

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  2. I cannot wait! 10:00 am’s not coming fast enough!!! :) love my iPhone 4, but ready for an upgrade..christmas is coming early this year!

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  3. But but but – you only have 3 million iPhone’s on Sprint in the first year – that means they have to sell the remaining 27.5 million phones in the 1.5 to 2.5 years after that? Looking at the math this way, this pretty much guarantees that Sprint must have the iPhone 5 exclusively. They are going to have to post way bigger numbers than Verizon did when it got the iPhone 4. We shall see if all of this is right!

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  4. If Apple does that, then I’m switching to the Atrix 4G until they decide to have a better iPhone for AT&T. I’m sick of having an iPhone that doesn’t even have flash. Get with it already.

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  5. If the iPhone 5 is going to be exclusively for Sprint I’m not even going to bother, probably end up switching to a newer android phone. Obviously if this is true then apple only cares about revenue and not the millions of people who have been waiting, who actually HAVE an iPhone. ‘Cause you know, they’re not going to sell annny iPhones through AT&T and Verizon, psh.

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  6. We will see.

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  7. illjusbedamned Monday, October 3, 2011

    How will this “reduce the churn” on the Sprint network?

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  8. El Compa Erick Tuesday, October 4, 2011

    This guy is an idiot. For the number of iPhones they are getting they will only make about 15 Billion (including their new plans) which doesn’t even get them their money back. Maybe after several years of carrying the iPhone they will start to gain profit but as of now they are total retards. I guess Sprint just wants to follow the pack. You sir are the loco. No sea guey pariente! You are saying they have to be selling iPhones at that same top rate which is impossible. Sales will have to slow down sooner or later when the phone starts to suck or another better one comes out. Basicly, Sprint sucks balls… and so does AT&T. iPhone rules and so does Verizon and anyone who says otherwise are ************
    :D

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  9. Martha Dominica Bis Tuesday, October 4, 2011

    sprint sucks! it has worst service than t-mobile.

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  10. I did a different analysis by looking at volumes of iPhone per subscriber base per year compared to Verizon and AT&T. http://www.asymco.com/2011/10/04/sprints-gamble/

    It turns out to be inline with what the sales rate is for the other US operators.

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