Will the gamble by Sprint to sell the Apple iPhone at a huge expense pay off for the nation's third-largest wireless carrier?
It isn't cheap to sell the popular device, and Sprint is taking a huge gamble in the investment. Sprint has already committed to purchasing 30.5 million iPhones over 4 years, which the Wall Street Journal estimates would cost $20 billion at current rates. Apple requires carriers to purchase their products in large quantities.
Besides the cost of the iPhone, the company hinted Friday that it could spend more than it takes in over the next several years due to a $7 billion network upgrade. Shares of the company took a beating Friday, falling 17.61 percent to $2.48 by 3 p.m. on the news from the investor conference.
Sprint, the third-largest wireless carrier in the U.S. behind Verizon and AT&T, has struggled to gain new customers as of recently. However, CEO Dan Hesse told investors on a conference call Friday that the number of customers has improved over the last 5 quarters, after 11 quarters of consecutive drops.
Yet not carrying the iPhone was still dogging the company. Last month, Hesse admitted to investors that the lack of the iPhone was the primary reason that consumers left for other carriers.
In an interview with the International Business Times, Charles Golvin, a telecommunications analyst with Forrester Research, said it was difficult to determine at this time if the iPhone would lure enough customers to Sprint to make the agreement with Apple worth it. He said that the unlimited data plan may help the company attract former customers who went with AT&T or Verizon wireless to get the iPhone. Neither AT&T nor Verizon offer tiered data plans rather than unlimited ones.
But the reality is that many who just left are on (a 2-year) contract, and don't have the freedom to move around, Golvin said.
Michael Nelson, an analyst with Mizuho Securities USA, told Bloomberg that he expects Sprint to sell approximately 1 million iPhones in the fourth quarter. As of Wednesday, he gives the shares a buy rating.
They will benefit from improved retention of their customers and a high level of customer upgrades, Nelson said.
With Sprint now offering the iPhone, the only major carrier to hold out is T-Mobile. Golvin said Sprint would have difficulty attracting customers from T-Mobile, given that T-Mobile-along with other low-cost carriers such as MetroPCS and Leap-has emphasized their inexpensive plans.
A more likely option for cost-conscious customers interested in the iPhone, according to Golvin, is they will go to AT&T for the iPhone 3GS, which will be free.
Sprint began taking pre-orders of the new iPhone 4S Friday, with the product hitting stores Oct. 14.
Write to Samuel Weigley at email@example.com.