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Why Sprint’s iPhone 5 gamble is not that crazy

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The word on the street is that Sprint (s S) 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 (s AAPL) 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 (s GOOG) 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 (s VZ) 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 (s T) or Verizon (s VZ).

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!

23 Responses to “Why Sprint’s iPhone 5 gamble is not that crazy”

  1. Chris Asendorf

    Wow I see a lot of short sightedness on the comments. Get this into your heads people sprint made a huge move a few years ago that is about to pay off with the new Iphone 5. Sprint Owns more spectrum then AT&T, Verizon and T-mobile combined. This means it can dedicate more bandwidth to each user, hence the true unlimited data plans. Since Real world performance between LTE and WiMax is negligible. I think we can say with with a REAL 4G Iphone on a REAL 4G network with a ton of open spectrum Iphone 5 users will be very happy with sprint, and sprint currently is the ONLY company that offers real unlimited Data with no caps and no throttling. I think if you really understand Data Networking you can see how this is a very good move for them….

  2. Im from the east coast and as a consumer im looking for signal and quality and its either att or verizon here. I’d radther deal with another name brand than having to switch to another carrier.

  3. Nicholas

    I look forward to switching from AT&T! Goodness, they call this data?

    But, my bill for a single line, and I need a new Android device to test, is between $150 and $200 per month for the iPhone, iPad, and tethering. I use it at home as well, so would be happy to upgrade a 4g access point. So, me switching will be approximately $3,000 in revenue.

    The last time I switched was from Verizon to ATT because V did not support Apple products for data cards. I’ve been 100% wireless since 2000 or so.

    Thank you ATT for your “service.”

  4. mindctrl

    God I hope Sprint doesn’t get some exclusivity. Their network is bad enough as it is. I can’t imagine what it’ll be like if there’s a mad dash of nerds drooling for an iPhone 5.

  5. Ummm what happens in a year or so when iPhone 6 and or 7 come out??? Who gets the exclusivity on those??? Am I just confused on SPRINTS way of seeing the future?? I’m a Sprint customer but can’t afford to go the way of 3/4 G…. what about us poor suckers??? Are we figured in on their plan??

  6. G the barber

    Sprint has to sell an average of 7.51 mill iphones per year.The good thing is year 1 iphone5 wimax: year 2 iphone 5s lte/wimax : year 3 iphone 6 :year 4 wimax 6s plus any ipad3 and other apple products

  7. First of all the iPhone 5 will not be exclusive to anyone. Apple learned their lesson with AT&T. Their are WAY too many iPhone customers to give the exclusive rights to one of the most anticipated mobile devices in recent memory to one carrier (especially to the smallest one). I love the iPhone, I’ve had them all since the original but I am also locked into a contract. As much as I would love an iPhone 5 I would not be willing to pay an early termination fee to get one, & I’m sure I’m not alone. If Apple wants to keep pace with Google the 5 has to drop on all 3 carriers at the same time. Giving exclusive rights to the smallest of the three carriers just doesn’t make sense.

  8. Well, If you have the latest itunes beta you will see that apple has already added iPhone 4S to it. BUT what i hear is that sprint might get the iPhone 5 while verizon and att get the iphone 4s. Is apple making a smart move, is it true? we’ll find out in several hours.

  9. El Compa Erick

    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 ************

  10. 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.

  11. 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.

  12. Brian Ward

    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!

  13. JuicyPooh

    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.