Why Sprint’s iPhone 5 gamble is not that crazy

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!

loading

Comments have been disabled for this post