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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.
Apple Seems to Hold Most of the Cards
5. More data usage is a problem
When the iPhone comes along, carriers need to invest in more infrastructure to accommodate the increased number of customers accessing the cellular and data networks. More data usage is costly, and can set carriers back. The iPhone is great and all, but if it costs a company more money than it should, its a liability. Too bad carriers dont remember that.
6. All other devices suffer
Lets not forget that carriers offer more than just the iPhone. Everythingfrom Android-based smartphones to feature phones to BlackBerrysis on store shelves. However, most of the other devices suffer from poor sales when the iPhone is available. Apple has made its device the only major seller on any carriers network.
7. Theres no discontinuing it
So, lets say one of the carriers decides that offering the iPhone is financially infeasible. Chances are, however, they wont get rid of it. Deciding against selling the iPhone would result in a massive stock price decline, millions of subscribers leaving the service and the possibility of outright closure. Once a carrier has the iPhone, theres no getting rid of it.
8. Theres no leverage
All these items might help illustrate one important point: There is absolutely no leverage in dealings with Apple. The iPhone maker determines what the future holds and will not allow carriers to have any input. Its a poor position for carriers to be in.
9. Things get worse over time
Over time, its impossible for carriers to get better terms from Apple. The companys iPhone continues to sell exceedingly well, and as noted, the carriers need Apples device. And as data costs and subsidies build up, trying to control expenses becomes all the more concerning. Unfortunately, when working with the iPhone, things can get worse over time for carriers.
10. Apple wont budge
Try getting Apple to change and see what happens. The company doesnt give in to carrier demands, and will not provide better terms as both companies benefit from offering the iPhone on a particular service. In China, for example, the company has been hoping to bring the iPhone to China Mobile, a carrier with more than 650 million subscribers. But after China Mobile requested a piece of the App Store revenue generated through its network, Apple balked. That doesnt sound like a company that will play nice with a carrier like Sprint and its 55 million customers.
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