Sprint: iPhone Decision Paying Off Despite Quarterly Loss

Sprint sold 1.5 million iPhones during the quarter, 44 percent of them to new customers, helping CEO Dan Hesse in his ongoing defense of the decision to sell the iPhone. The carrier still posted a $863 million net loss.

Sprint CEO Dan Hesse is still defending the decision to support the financially burdensome Apple iPhone, though the carrier€™s first-quarter numbers were on his side. Sprint sold 1.5 million iPhones during the quarter€”44 percent of which were to customers new to Sprint. However, the carrier still posted a net loss of $863 million, although Sprint performed better than many analysts expected.

Sprint seems to be picking up more new iPhone customers than its rivals, which the company believes will give it better financial stability. AT&T, by contrast, sold 4.3 million iPhones during its first quartet but only 21 percent went to new customers. Verizon Wireless didn€™t share what percentage of the 3.2 million iPhones that it sold during its first quarter went to new subscribers.

Sprint€™s new iPhone users also helped the company to realize a 16 percent growth in wireless service revenue, compared with figures from the same quarter a year ago. The carrier also boosted the average revenue it makes per user by nearly 7 percent€”the largest such year-over-year increase on record for the U.S. wireless industry, according to a company statement.

€œWe delivered another strong iPhone quarter,€ Hesse said during an April 25 earnings call. A study performed by Sprint, he added, €œfound that over 60 percent of our iPhone customers who switched to us from another company wouldn€™t have if we didn€™t offer the iPhone.€

Hesse also highlighted several statistics that showed the company increasing its customer satisfaction, including numbers that show record low calls to customer service during the quarter. €œEvidence so far supports our decision to carry the iPhone,€ said Hesse

For its sixth straight quarter, Sprint added more than one million new customers, 263,000 of whom were net postpaid subscribers. While Sprint also announced an operating loss of $255 million for the quarter, which ended March 31, it exceeded Wall Street€™s expectations, helped along by subscribers€™ higher monthly bills.

While Sprint was the first major U.S. carrier to offer 4G, its chosen flavor at the time€”the only available flavor at the time€”was WiMax, and it€™s now in the position of playing catch-up to Verizon€™s and AT&T€™s expanding Long-Term Evolution (LTE) networks. By midyear, Sprint plans to have LTE deployed in six major cities, including Baltimore and Dallas, with 12,000 more sites going live by year€™s end. To date, Sprint executives shared, work has begun on 25 percent of those planned sites.

€œThere are good days, and days that make you put your face in your hands,€ Steve Elfman, Sprint president of network operations, said during the call, explaining that overall the rollout is going well, with no real issues in sight.

AT&T, which shared first quarter results that included sales of 4.3 million iPhones, 5.5 million smartphones in total and additions of 726,000 new wireless subscribers, now has LTE in 35 markets and counting, while Verizon is up to 230 cities.

Part of Sprint€™s motivation to expand its LTE sites as quickly as possible is to support the next Apple iPhone€”though Hesse was quick to say that he doesn€™t know when the next iPhone will arrive or what it will have inside. Plenty of other people, however, are more than happy to speculate, and nearly all of them agree that support for LTE will be on board.

When asked how worried he was about selling an LTE-ready iPhone on a network with minimal LTE coverage, Hesse said: €œIt€™s important to keep in mind, when we launched the Evo 4G, we sold the majority in non-4G markets. Customers look at more than whether it€™s 4G [enabled]. When you look at iPhone sales, many are in 4G markets, though it€™s [only a 3G product].€

Technology Business Research analyst Eric Costa expects Sprint's LTE network, combined with its unlimied data plan, will to provide it with "immediate advantage over the competition," he wrote in an April 25 research note.

"Sprint's LTE strategy is important to ensure the operator keeps up with similar offerings and services as AT&T and Verizon, but Sprint's future advantage will rest solely upon its price advantage compared to AT&T and Verizon," Costa added, noting that he doesn't believe Sprint will be able to sustain its unlimited plan past 2013, when usage rates will "spike."

Of the most recent earnings reports from Sprint, Verizon and AT&T, Kevin Smithen, an analyst with Macquarie Capital, called Sprint€™s €œeasily the most impressive quarter of the three,€ according to Bloomberg. Smithen additionally advised investors, €œSprint is the most attractive U.S. telco under our coverage, with the potential to more than double over the next two years.€