Rising Apple iPhone subsidy costs force Sprint CEO Dan Hesse to take pay cut

Rising Apple iPhone subsidy costs force Sprint CEO Dan Hesse to take pay cut
With the spiraling costs of subsidizing the Apple iPhone cutting into Sprint's profits, company CEO Dan Hesse said he would take a cut in pay to help the company recover some of the costs. In a letter to the carrier's human Resources department., Hesse said that he would take a cut in pay that would allow him to repay $346,000 in incentive pay that he had already received. Further cuts will make Hesse forfeit huge sums of incentive pay that he was eligible to receive under terms of his contract. All together, Hesse will be missing out on $3,250,830 that he was entitled to receive after Sprint's compensation committee made some adjustments to his pay. Hesse said that after taking everything into account, his 2012 incentive compensation target has been cut to 2010 levels.

Sprint has made a $15 billion commitment to the Apple iPhone. While adding the iconic smartphone to its lineup has helped the nation's third largest carrier add new subscribers, it comes at a high cost since Sprint subsidizes most of its iPhone sales. The carrier started selling the iPhone last October 7th and pays Apple a subsidy for each phone it sells that is 40% higher, or $200 more, than the subsidy it pays to manufacturers for other phones. In the most recently released quarter, Sprint sold 1.5 million units of the Apple iPhone and the device helped Sprint add 1.1 million new subscribers in the period to a company record 56 million customers.
 
source: Reuters

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142 Comments

135. Berzerk000

Posts: 4275; Member since: Jun 26, 2011

The iPhone deal was a big commitment for Sprint. It's rough right now, but if they can get through this year with little to no problems, it should be smooth from then on. People flock to the iPhone, no matter what the competition. If people on Verizon were complaining about their iPhone not having unlimited data, or their plan being too high, well now Sprint is their option with it's cheaper plans. The only downside for consumers, Sprint's 3G network is really bad right now, and the iPhone only gets 3G. So it's either WiFi, or deal with insanely slow speeds.

127. ScelesticSteve

Posts: 26; Member since: Mar 29, 2012

I'm sure his salary is still in the millions, which I think is completely ridiculous. Dan Hesse, it's better to have a cut salary which is still in the top 1% of Americans, considering 99% of them make considerably less for you. Without the iPhone, Sprint employees weren't going to have a paycheck in the future.

123. Sprintfan

Posts: 68; Member since: Nov 18, 2011

Lets do some math: Apple Iphone 4s:$650.00 Samsung Galaxy Nexus: $550.00 2 year pricing for both devices:$199.99 The minimum plan for these phones:$79.99 On the iphone it will take an average of about 5 bill cycles to become pay for the subsidy. And about 4 bill cycles to pay for the Nexus. So during the 2 year duration of the contract Sprint wil make $1500.00 of the customer for an iphone and $1600.00 off a customer for the average of a nexus. On a family plan it is different. On a 5 line data plan the monthly cost is average $48.00 per line. So essentialy it can take 9-10 months to pay for the device subsidy. So if you take the average of the 2 its going to take sprint 7 bill cyles average for the device to become profitable. My point being. yes sprint made a huge commitment. yes it cost them a lot up front. yes they added more customers than ATT/VZW because of the iphone. yes this turns into profit, it takes a month longer than a high end samsung. yes sprint is on its way to becoming the best carrrier with Network Vision and TD/LTE in 2013. Any questions? :)

125. atheisticemetic

Posts: 377; Member since: Dec 18, 2011

if you actually worked for a cellphone store you would realize that your math is quite off.... secondly are you serious about sprint becoming the best carrier? are you mad?! i honestly think you're trolling...and if you're not then shame on you for failed logic :)

126. androiddownsouth

Posts: 598; Member since: May 02, 2012

Yes I have a question. What are you smoking and where can I buy some? Must be something awesome if you think Sprint will become the top carrier ever, much less as early as next year.....

139. remixfa

Posts: 14605; Member since: Dec 19, 2008

Did you go to Taco's school of math? The phone isnt paid off over 4 months, its worked into the monthly plan costs and generally paid off over 20 months or so.. and that's at VZW/ATT pricing scales. Sprint is eating the cost of the iphone, which is pretty much eating the entire contract's profit, in hopes that those new iphone subscribers bring over their entire family so they can make money off the other lines. Then if the iphone user does not try to upgrade right away, they start making money off of him. Expect carriers to try to make u not want to upgrade by adding even more fees and such.

118. simplyj

Posts: 406; Member since: Dec 23, 2009

Oh no! How will he survive?!

114. ngo2dd

Posts: 896; Member since: Jul 08, 2011

For people who say Apple does not bring in customer. Sprint get 1.5 million customer in Q1 of 2012. Sprint did not release any high-end phone in Q1, and many of them are for other company. News flash for everyone Carrier do not make money off the phone. They make money off contract. The more people on contract the more many they can earn.

124. atheisticemetic

Posts: 377; Member since: Dec 18, 2011

but when the subsidy of the phone cuts into the profit that they make on the actual contract? you have a problem tower maintenance, customer support, sales reps. all of these things factor into someone just walking into a store (or getting online) and purchasing a phone remember...sh*t rolls down hill...think my friend

111. atheisticemetic

Posts: 377; Member since: Dec 18, 2011

three words... F#$# you apple

70. TROLL

Posts: 4851; Member since: Apr 13, 2012

I have an iphone4s64gb I love like apple products But really hate dislike closed ecosystem.... Apple apps are good quality.... I'm a android fandroid.....

56. taco50

Posts: 5506; Member since: Oct 08, 2009

The total lack of being in touch with reality is mind boggling for some of the rabid android fans. iPhone is bad for business- if you listen to Randal Stephenson's interview just above he says that before the iPhone AT&T profit margins were 32%. Now in 2012 they're 41%. Saying iPhone is bad for profit shows you have no concept of the mobile industry or reality. iPhone is overpriced- this statement shows you have a complete lack of understanding of how markets work. The market decides the price I can charge. If I overprice my product then no one will buy it and I'll be forced to lower the price. The fact iPhone is selling in record numbers shows in fact it's not overpriced. Carriers don't need the iPhone- no one forces carriers to do business with Apple. The fact the carriers all want the iPhone shows the iPhone is good for business. Some reasons why? iPhone customers have lower churn, higher satisfaction rates and iPhone is more likely to get customers to go from a basic to a smartphone than any other phone. If you read Sprints Q1 results 44% of the 1.5 million iPhones they sold were to people that switched to Sprint. That is why carriers want an iPhone. Apple is greedy- every corporation is out to make money. The fact Apple makes more money shows they have a better business plan in place. Companies who make less money don't do so out of the goodness of their heart. They're just less successful. Their products aren't in demand and Apple's are.

61. jbash

Posts: 345; Member since: Feb 07, 2011

I hate the iPhone but I agree there is not another company as good as them at selling their product.

71. taco50

Posts: 5506; Member since: Oct 08, 2009

Hating a phone is an illogical emotion. Why would you hate a cell phone? That makes no sense. The world is full of haters who get upset at seeing success whether it's an individual or a company.

74. remixfa

Posts: 14605; Member since: Dec 19, 2008

says the child that takes a swipe at android with nearly every post he makes.

106. jbash

Posts: 345; Member since: Feb 07, 2011

the reason i say hate is because everytime that i do something that easy and efficent on any other device, it either is in another place instead of in the app being used or it is not capable of doing it all together

65. TROLL

Posts: 4851; Member since: Apr 13, 2012

Is that TACO talking wisely first time By not trolling wow...

75. remixfa

Posts: 14605; Member since: Dec 19, 2008

generally when taco tries to act like this, it means he got a warning letter that he is about to be banned again. dont worry, he wont even last 24 hrs before he goes back to regular taco.

72. remixfa

Posts: 14605; Member since: Dec 19, 2008

in a true free market, the market decides the price. in an artificial market like the one apple has created, it controls the price. it controls the price that it sells to the carriers, and apple controls the price the carriers are allowed to sell the iphone at, creating artificially high prices over long periods than normal. Remember how you always joke about android phones going on sale sooner than an iphone? Thats because andriod phones are controlled by free market pressure, where apple refuses to bow to free market. That is also why apple's sales spike and then have a steady downward trend with every model. Allowing the market to make the price adjustments on the iphone would steady out their sales.. but apple doesnt care about that as long as they make their massive profits. Taco is TRYING to look like he isnt a complete troll, but if you actually look at what he is writing, you realize its a thin veiled act. A few actual points spread between a bunch of BS. Cite your sources taco.

82. taco50

Posts: 5506; Member since: Oct 08, 2009

In a free market a company is free to sell their product at any price they want. Android phones have to get discounted because they can't compete at higher prices. You think carriers would slash their prices if they were selling at $300 or even $200. iPhone sells at the prices set therefore the price doesn't drop.

88. remixfa

Posts: 14605; Member since: Dec 19, 2008

ahh.. regular taco is already starting to return. Android has increased competition in its space, which is what pushes the prices down. Again, Apple's space is artificial and they do everything they can to resist market pressure for as long as possible. If the price didnt drop, why is the i4s on sale for $100 at WALMART??.. yup.. thats where I go to get all my high class stuff.

91. taco50

Posts: 5506; Member since: Oct 08, 2009

http://m.bgr.com/2012/05/04/walmart-att-iphone/ UPDATE: Walmart confirmed to 9to5Mac that the retail chain “experienced a pricing error in limited stores” yesterday and prices have now returned to their original amounts. How is the price artificial if people are buying it at that price?

96. remixfa

Posts: 14605; Member since: Dec 19, 2008

wow.. quite the error. I hope a lot of people took advantage. Taco, you need to take an economics class. im not going to try to explain something knowing that there is just a blank stare on the other end of the conversation.

99. taco50

Posts: 5506; Member since: Oct 08, 2009

Well your whole Walmart argument is completely shut down. So according to your view of economics I should sell my product for less than I'm able to why? Explain to me how that makes business sense.

100. remixfa

Posts: 14605; Member since: Dec 19, 2008

"Taco, you need to take an economics class. im not going to try to explain something knowing that there is just a blank stare on the other end of the conversation." again, i already answered your question. learn to read.

105. taco50

Posts: 5506; Member since: Oct 08, 2009

Seriously why would a company drop it's price when it sells in record numbers at the current price. Give me the economic theory you're talking about.

92. thedarkside

Posts: 654; Member since: Apr 30, 2012

you shouldnt shop at walmart.

97. remixfa

Posts: 14605; Member since: Dec 19, 2008

i really try not to. ugh..

83. Sniggly

Posts: 7305; Member since: Dec 05, 2009

We're not arguing that Apple doesn't bring customers. But you would have to be insane to argue that the iPhone itself doesn't cut into profit margins for anyone but Apple. Why do you think Verizon introduced an upgrade fee scant months after trying to introduce a bill pay fee?

89. taco50

Posts: 5506; Member since: Oct 08, 2009

It does in the short term but long term it increases profits. Listen to Randall Stephenson's interview about how AT&T profit margin increased with the iPhone.

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