iPhone Subsidy Expense Weighs Heavy on Sprint's Bottom Line

Posted 02/09/2012 at 7:25am | by Paul Lilly

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Sprint's Chief Executive Officer Dan Hesse wished long and hard for an opportunity to carry Apple's iPhone, but what he and his company never considered was the old adage that says 'Be careful what you wish for, because you just might get it and then you're stuck with high iPhone subsidies.' We added that last part, but to be fair, does it matter? Sprint, like Verizon, was hellbent on carrying the iPhone, and now it's seeing the cost of that decision.

Sprint reported a net loss of $1.3 billion, or 43 cents a share, for its fourth quarter of 2011, compared to $929 million during the same quarter one year prior. The widening loss is partially the result of increased equipment subsidies directly attributable to carrying the iPhone. Sprint's subsidy costs came out to $1.7 billion during the quarter, compared to less than $1.2 billion in the year-ago period and in the third quarter of 2011.

"The quarterly year-over-year and sequential increase in net subsidy is primarily due to the launch of the iPhone 4 and iPhone 4S, which on average carry a higher subsidy rate per handset as compared to other handsets," Sprint said.

It's too early to tell if carrying the iPhone will be a permanent drag on Sprint's bottom line, and there are some positives that came out of the fourth quarter. Sprint added 1.6 million wireless subscribers in the quarter, the highest since 2005, and now serves more than 55 million customers. Sprint also sold 1.8 million iPhone devices last quarter, 40 percent of which went to new customers.