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Sprint's iPhone deal - a huge loss leader?

Medion

Medion

Android Expert
According to various sources, Sprint is paying Apple $20 BILLION dollars over the next four years for 30.5 MILLION iPhones. Let's see how that compares.

First, that's an average price per iPhone of $655.74 per iPhone. Keep in mind that's various models and capacities. Given that their iPhones are sold on contract at prices of $100/$200/$300, we'll make a faulty assumption that $200 is the average sale price. That means that Sprint would be subsidized at least $450 per sale, on average. That's a higher subsidy than any other phone that I'm aware of, and is likely higher than what AT&T and Verizon are paying.

I'm sure that Sprint is hoping to use the iPhone to steal customers from other carriers, predominantly T-Mobile and the smaller carriers. However, with that kind of subsidy, I can't see them pushing the phone on existing subscribers the way that Verizon and AT&T do.
 
You will have to consider that the $200 contract price is well... a contract. You buy a phone for $200 a month w/ contract, contract tells you to give Sprint x amount of money every month, Sprint make money. If you ditch the contract, you pay a big bill.

Now if you want the iPhone without a contract, you pay the full retail price, which $600 sounds about right. Sprint bought the phones via full retail price.

Here's an example:
Sprint buys phone $600.
You buy phone $200 plus contract.
Contract says pay $80 a month (note: I have no idea what Sprint's prices are, these are made up)
You keep the phone for 1 year. That's 12 months.
80*12=960. Your monthly payments.
960+200=1,160. Amount you gave to Sprint.
1,160-600=560. Sprint paid $600 for the phone
Yay Sprint made $560 from one customer.
Now multiply $560 to the number of customers with this plan...
 
Yes, I'm aware of that. However, at retail price, the carrier usually makes roughly 10% profit. In this case, they'd be selling it at a loss, even at retail. Also, their subsidy on contract phones is usually around $250 per phone. Here, it's over $450. That's a lot to swallow compared to the usual way of doing business.
 
Sprint wouldnt do it if they couldnt turn a profit on this. They are making money somewhere on these phones.
 
Dark Jedi said:
Sprint wouldnt do it if they couldnt turn a profit on this. They are making money somewhere on these phones.
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They are making money in the long term (I'm sure their recent ETF hike was to go with this). However, they're making less money (if not losing money) from existing customers who migrate to the iPhone. IMO, this is a ploy to generate new customers from other carriers.

If most of their iPhone sales go to new customers, then this worked in their favor. If most of the sales go to existing customers, then Sprint loses money. It's a gamble that they took, but US Cellular decided against.
 
You dont know the figures of them selling a phone on a new contract compared to existing customers buying the phone out right as they are not up for an upgrade. We know nothing of their plan and to speculate is just a waste of time.
 
Dark Jedi said:
You dont know the figures of them selling a phone on a new contract compared to existing customers buying the phone out right as they are not up for an upgrade. We know nothing of their plan and to speculate is just a waste of time.
Click to expand...

This is absolutely correct in that neither of us know the exact figures. However, speculating is certainly not a waste of time. It's for fun and discussion. We do a lot of speculating on these boards. This in itself was a speculative thread. If you felt it was a waste of time, you wouldn't have posted twice.

However, if you disagree with the content of a post, please use the report button and a moderator will evaluate it. By posting as you did, you effectively went off topic. I don't feel that was necessary. Don't like a topic? Don't post in it.

And back on topic, I am well aware that Sprint intends to profit off of this. My poorly worded post was meant to imply that they're willing to sacrifice short term profits to net a higher subscriber count (an area they've been bleeding), in order to hopefully generate more future profits. Also, by becoming a larger carrier, they can probably get a better deal from Apple on the next negotiation. So, that's a better worded explanation on why I termed it a loss leader.
 
This was basically a hail Mary by Sprint to stay viable. They better hope it works because they bet their future on the iPhone. We do know their plan, actually. Sprint has stated that if everything goes exactly as planned they will break even on this deal sometime in 2014. They have been raising capital to tide them over until then. Good luck to them. There are a lot of jobs at stake, and less competition is never a good thing.
 
Gmash said:
This was basically a hail Mary by Sprint to stay viable. They better hope it works because they bet their future on the iPhone. We do know their plan, actually. Sprint has stated that if everything goes exactly as planned they will break even on this deal sometime in 2014. They have been raising capital to tide them over until then. Good luck to them. There are a lot of jobs at stake, and less competition is never a good thing.
Click to expand...

Couldn't agree more. They have placed their future in the iPhone acquisition and the upcoming 4G LTE-upgrade. I suppose they were wishing that this would make customers either A) stick around for a while to see how it all pans out or B) jump ship from other providers (like you stated previously). I'm curious how everything will end up.
 
Hmm.. This is slightly related...
I understand getting the iPhone for sprint... and the 4g/lte upgrade, but why would they cancel their premiere customer thing?

If a person can get a new phone every year, then you keep locking them into 2yr contracts right? So isn't that what they want? Don't they make up for the the 'cheap' (using that term loosely.. ;) ) phones with the plans/contract..?

Could someone who has more knowledge on the subject clear that bit up for me?
 
9to5cynic said:
Hmm.. This is slightly related...
I understand getting the iPhone for sprint... and the 4g/lte upgrade, but why would they cancel their premiere customer thing?

If a person can get a new phone every year, then you keep locking them into 2yr contracts right? So isn't that what they want? Don't they make up for the the 'cheap' (using that term loosely.. ;) ) phones with the plans/contract..?

Could someone who has more knowledge on the subject clear that bit up for me?
Click to expand...

I'll try to explain. Let's say that the customer is on a plan that costs $79.99/mo. That comes to $959.88/year, or $1,919.76 for two years. Now, if they let you upgrade after one year, they have to eat another $450, or $900 total. That means they made total revenue of only $59.88 for that year off of you, as opposed to over $1,000 if they don't let you upgrade until after two years. And keep in mind, revenue is not profit. If they only make $60 off of you after one year in terms of revenue, they the lost money on you when you figure in other overhead such as the network, employees, shareholders, etc.

Basically, they have to generate a profit. By adding the iPhone under these terms, they had to generate more revenue to make up for the cost. Two changes that likely were in response to this were the elimination of the Premier plans as well as the raising of the ETF from $175 to $350 (or something like that, not sure on the exact ETF figures).
 
Medion said:
I'll try to explain. Let's say that the customer is on a plan that costs $79.99/mo. That comes to $959.88/year, or $1,919.76 for two years. Now, if they let you upgrade after one year, they have to eat another $450, or $900 total. That means they made total revenue of only $59.88 for that year off of you, as opposed to over $1,000 if they don't let you upgrade until after two years. And keep in mind, revenue is not profit. If they only make $60 off of you after one year in terms of revenue, they the lost money on you when you figure in other overhead such as the network, employees, shareholders, etc.

Basically, they have to generate a profit. By adding the iPhone under these terms, they had to generate more revenue to make up for the cost. Two changes that likely were in response to this were the elimination of the Premier plans as well as the raising of the ETF from $175 to $350 (or something like that, not sure on the exact ETF figures).
Click to expand...

Thanks. I was thinking it had to stem from money, but you made it very clear.

(by the way, I think the ETF was 200, that's what I heard at least, I think that's what our "Stop roaming or we'll kill you" letter said. )
 
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