Sprint Sees iPhone Subsidies as Necessary Evil

BARCELONA -- Mobile World Congress 2012 -- Sprint Corp. (NYSE: S) got the coveted iPhone on its 3G network last October, a four-year, multi-billion dollar deal with Apple Inc. (Nasdaq: AAPL) that will cause the carrier's profits to decline this year.

The third-largest carrier in the U.S. said it activated over 1.8 million iPhones during the fourth quarter, with 40 percent of them tied to new Sprint customers. But the device also contributed to a surge in Sprint's subsidy payouts, rising to $1.7 billion from $1.2 billion in the year-ago period. (See Sprint's iPhone Q4 Ouch!)

A 10-K released Monday revealed that Sprint committed to purchasing approximately $15.5 billion worth of iPhones, a number that it expects to exceed.

Sprint CEO Dan Hesse acknowledged here on Thursday that rising subsidy prices are a big issue because retail prices aren't climbing along with them.

"When you're a carrier paying $400, $500 to $600 for a phone, you're getting more out of it, but the [subsidy] prices continue to go up," Hesse said. "That's a challenge."

But, according to Fared Adib, Sprint's VP of product, the carrier had to carry the iPhone to help it stop customers from leaving and appease those who stayed with Sprint as they waited for the device. It was a gamble Sprint weighed against churn, customer satisfaction and expected sales of the device. Adib says he believes the balance will work out in Sprint's favor in the long run. (See Do Big Subsidies Have Big Staying Power?)

Around the 55-second mark in the Light Reading TV interview below, Adib explains why the iPhone is a necessary evil, but one that's at least improving customer satisfaction.

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Sprint's been in the headlines a lot this week as reports surfaced that its board nixed a deal to acquire MetroPCS Inc. (NYSE: PCS), putting Hesse on the hot seat. Execs wouldn't comment on the deal rumor, but check out the stories below to get caught up on the action. — Sarah Reedy, Senior Reporter, Light Reading Mobile

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