Sprint (S) Defends $15.5 Billion Apple’s iPhone Gamble

Sprint (S) Defends $15.5 Billion Apple's iPhone Gamble

Sprint Nextel Corp. (NYSE:S) CEO Dan Hesse has spoken out on his company’s iPhone subsidies. The company made a $15.5 billion deal with Apple Inc. (NASDAQ:AAPL) last October which secured them the right to carry the iPhone on their network. Many have complained about the practicality of the massive deal and about Sprint’s ability to sell enough of the devices to cover the cost. The deal saw Sprint offering big subsidies on its sales of iPhones to new customers.

We reported last week on a the possibility of a sprint bankruptcy in the not too distant future. That report , based on a release from Bernstein analyst Craig Moffatt, showed that the company is suffering from many ailments, among them the $15.5 billion deal made with Apple Inc. to secure the company’s iPhone for their network. That deal was put alongside the company’s large debt burden and its lack of a 4G LTE network as the main factors that could cause the company trouble in the future and may in fact lead to a bankruptcy.

Charlie Munger: Invert And Use “Disconfirming Evidence”

Charlie MungerCharlie Munger is considered to be one of the best investors and thinkers alive today. His thoughts and statements on investment research, investment psychology, and general rational behavior are often incredibly insightful. Anyone can learn something from this billionaire investor and philosopher. Q2 2020 hedge fund letters, conferences and more If you’re looking for value Read More

The company’s CEO doesn’t see it that way. He points to a couple of factors that, at least in his eyes, show the iPhone’s positive contribution on the company’s welfare and how it will continue to reap dividends in the future. His argument centers on unlimited wireless data provision. Sprint are the last of the three big US carriers to offer such a deal. Hesse says customers prefer the simplicity of the arrangement and says his firm are winning over customers from the bigger carriers based on the offer. iPhone users use less data than their Android counterparts and so the more Apple users on their network the lest it actually costs them to offer the scheme.

The CEO also points to statistics that show 40% of iPhones bought on Sprint are for new customers. This is a bigger ration than either AT&T or Verizon have managed. Because of the subsidies new customers are the lifeblood of the iPhone trade for the carrier and a greater proportion of them mean lower costs on the carrier. Despite Hesse’s protests analysts may not be easily convinced of his side of the argument. The signs of a bankruptcy aren’t going away and the network’s lack of 4G capability may mean the next model of iPhone, which may have the feature following the iPad, could be out of the carrier’s reach technologically.