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Sprint CEO Takes Pay Cut for High iPhone Costs

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It looks like AT&T‘s head isn’t the only one to look back at his company’s decision to offer the iPhone as Sprint CEO Dan Hesse was issued a pay cut due to the high price that the carrier has to pay for the handset. As carriers often subsidize handsets to make it cheaper for consumers to take home a smartphone–you’re paying $200 rather than $600 for a brand new phone in exchange for a two-year signed service agreement–Sprint’s subsidies for the iPhone exceeds the amount that the Now Network subsidizes other competing handsets.

According to Reuters, Hesse seems to be receiving the blunt of his decision to bring the iPhone to his network, which resulted in a $15 billion deal.

Hesse said his 2012 salary would be cut to repay about $346,000 in incentive pay that he has already received and forfeit additional amounts that he was eligible to receive under his 2011 and 2012 incentive plans.

Even though the number three largest national carrier in the U.S. is adding new subscribers and growing its network as a result of having Apple’s flagship smartphone in its portfolio, investors are not pleased that the cost of adding new subscribers has resulted in higher short-term costs for the carrier, a fact that Hesse had cautioned earlier when the partnership with Apple was announced. Hesse had warned that the iPhone would be a big boost for Sprint, but the subsidies would mean declining profits in the near-term, something that has proven to be true in Sprint’s latest earnings call.

New Growth in Latest Quarter

In the most recent quarter, Sprint announced that it has sold over 1.5 million iPhones and added 1.1 million new customers to its network.

Cost of Subsidies

According to the report, Sprint pays 40 percent more to subsidize the iPhone than compared with other handsets. That amounts to roughly $200 more that the carrier has to pay to sell an iPhone to an existing or new customer compared to a phone running BlackBerry, Windows Phone or Android.

In the past, carriers that do not offer the iPhone have stated that they are losing customers. T-Mobile USA, the nation’s fourth largest carrier and the single national carrier without an iPhone on its network, has blamed its subscriber losses due to the fact that it does not offer the Apple smartphone. In recent months, Apple has expanded its iPhone offering and now even smaller regional carriers in the U.S. are offering the iPhone to its customers.

Unlimited Data to Help Sprint Grow

With Sprint being the lone national carrier to offer a truly unlimited data plan, we’re wondering if in a few years Sprint will be feeling the same way that AT&T does now. As Sprint has announced that for now, we can expect to see unlimited data, even on 4G LTE, when the LTE-enabled iPhone comes out on Sprint’s network, the carrier will probably see more big gains in subscribers, which will further put a strain on its balance sheet as it continues to offer subsidies to iOS users.

Tech enthusiast in Silicon Valley enjoying the possibilities of ubiquitous connectivity, information sharing, and collaboration enabled by mobile broadband. You can contact Chuong on Twitter @chuongvision or search +chuongvision on Google+.

3 Comments

  1. Bradleyw801

    05/07/2012 at 9:21 am

    Love me some Sprint! I think Dan Hesse is the best thing to happen to Sprint in years, he makes smart long term moves, and I really think you will see them not only dig out of their hole, but start giving big red a run for their money, which is good for all of us as consumers, even if you aren’t on Sprint.

  2. Tom Hornsby

    05/07/2012 at 10:24 am

    Verizon can lure customers to an LTE handset to avoid the high iPhone subsidy, but Sprint has no LTE network to do something similar. AT&T is also beginning to build their LTE network but it’s too small now for an LTE handset to be an incentive to forego an iPhone.

    Of course when the iPhone 5 comes out it will likely be LTE, then Sprint loses out again.

    The unlimited data on Sprint is attractive, but their coverage is so limited that it’s not enough.

  3. Herman

    05/11/2012 at 9:39 pm

    Sprints service sucks in some areas. But I pay 180 for 4 lines so I can take a not so good service for what I pay. Sprint now charges an extra 10 bucks per line for there data service. So the real price is 89.00 a month. Last year they said the extra 10 bucks was for there 4g service. So now the F U and call it a data charge

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