Sprint had an awfully disconcerting story to tell Feb. 8 when it announced its fourth-quarter earnings.
Although Sprint saw revenue rise and its subscriber base gain ground on the competition, its operating income slid nearly 11 percent. Although Sprint didnt dive too deeply into how the iPhone impacted its financial performance, the company did acknowledge that Apples devices contributed quite a bit to its issues.
Sprints troubles over the last quarter underscore something the company might not have realized would happen when it first inked its deal with Apple: Partnering with the iPhone maker is by no means fun. In fact, becoming a carrier partner with Apple is a lot like giving away the vast majority of profits and taking on all the risk and expenses. Sure, its great to offer the iPhone, but at the end of the day, it isnt nearly as great as Apple and its fans would have you believe.
Heres a look at the problems all three of the major carriers inherit when they carry the iPhone.
1. Losses mount
As Sprints performance has shown, selling iPhones at a rapid rate does not mean that itll translate to profits. In fact, theres a good chance that due to the extreme subsidies that are required on Apples devices, losing money at the end of the day is a real possibility. Plan sales could help, of course, but thats not enough for a small carrier like Sprint.
2. Being late to the game doesnt guarantee strong sales
So far, AT&T is the only major U.S. carrier that has benefited greatly from having the iPhone. The carrier has watched its subscriber numbers and revenue soar. Meanwhile, Verizon Wireless and Sprint, while seeing that effect on their own front, havent seen it to such a degree. Being late to the iPhone game doesnt guarantee good results.
3. Apple has too much power
Apple is quite powerful when it comes to parts suppliers, but its also a huge threat to carriers. The company dictates terms for its iPhone, provides little information, and along the way ensures that it will maintain its power for as long as possible. Its a nightmare scenario for carriers.
4. Huge subsidies are required
Apple sells its iPhone for $600 and up. So, in order to bring the device down to a level that consumers would actually find appealing, carriers must offer them at a discounted rate of, say, $199 or $299. Meanwhile, they have to hope to make up the shortfall on more subscribers and plans. Its not so easy to do.