Sprint has to pay Apple $15.5 billion for the iPhone, says it needs $7 billion

Sprint has to pay Apple $15.5 billion for the iPhone, says it needs $7 billion
Sprint has finally spilled out the details of the gigantic bet it's taken with Apple's iPhone. The nation's third-largest carrier has obviously inked a very risky four-year agreement with Apple, under which Sprint has to pay $15.5 billion. The carrier expects the Apple deal to yield a “net present value” of between $7 billion and $8 billion in return throughout those four years, but still CEO Dan Hesse admits that the Now Network is paying Apple a 40% higher subsidy than other carriers. This translates into an extra $200 for Cupertino for every Sprint-branded iPhone.

"iPhone has an expensive contract, but is worth every penny," Hesse said.

At the same time, the carrier said it will need $7 billion in new financing in the next few years to cover for that shortage of cash after the Apple deal. The market value of the company coincidentally stands at $7 billion as well.

In addition, Sprint is undergoing a $7 billion network upgrade, which only worsens things when it comes to the company's cash assets. The carrier is also negotiating the terms of a new deal with ClearWire.

Analysts met the news skeptically and Spint stock responded by going down nearly 7%, slashing slight gains it had registered. ClearWire stock, in contrast, grew by 19%, but the company is still looking for $900 million in funding.

What's the danger here? In effect, Sprint is betting the farm on not one but two huge investments – the iPhone and the upgrade to LTE. Both seem essential to the carrier's future, but at the same time Sprint has taken a huge bet as it cuts very close to the bone, meaning that the company could face problems with liquidity if its strategy fails.

It's too early to estimate the prospects of the laid out plan and some analysts say it will take a year to see Sprint's progress towards its two goals more clearly. The liquidity risk might also mean another review of its credit rating very soon. This risky future outlook dwarfed the otherwise stronger than expected quarterly results for Sprint.

What do you make out of this - is Sprint's iPhone bet a sprint or a marathon? Is now just a good time to buy or does this moment signal trouble for Sprint?

source: Reuters

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63 Comments

60. redflag_rising

Posts: 20; Member since: Oct 26, 2011

sprint could not do it without prices getting high... with a company that have a lot of debt they need to suck up every penny from customers to roll out the business plan...........

58. vvelez5

Posts: 623; Member since: Jan 29, 2011

This is a huge gamble. Dan Hesse will either be laughed at or be praised as a business genius. He is literally betting the whole company at a successful and timely LTE launch. I see them raising prices for this if they can pull this off without raising prices I will be shocked.

57. corporateJP

Posts: 2458; Member since: Nov 28, 2009

Good luck with the farm, Sprint.

55. downphoenix

Posts: 3165; Member since: Jun 19, 2010

well the iPhone cant save all customer losses. Im currently overlooking my options on cancelling my sprint service and going with t-mobile. Price is king for me, iPhone isn't even in the running.

49. remixfa

Posts: 14605; Member since: Dec 19, 2008

holey shyyyyyt.. wow, ol Steve-o got Dan over a barrel before he died. what a huuuge freaking mark up on an already expencive device. Apple was already making 70% per regular iphone4s sold. That means they are making nearly 110% for every sprint iphone sold thats insaaaaaine. OMG. well, ya gotta love apple's ability to get crazy prices.

44. downphoenix

Posts: 3165; Member since: Jun 19, 2010

The iphone was a bad deal for sprint. They paid apple $200 more a phone than AT&T and Verizon? LMAO. They are losing a lot of money on each iPhone sale, without an iPhone customer being more profitable. They should have screwed the various changes that punished all customes and targetted the iPhone customers specifically with additional charges, maybe have a 72$ act/upg fee for iPhones only, maybe the premium data be $20/mo instead of $10/mo, make the early upgrades only apply to non iPhone devices, something of that nature, rather than be content with paying $200/device more than your competitors and spread the punishment equally.

33. Johnny_Mnemonic

Posts: 240; Member since: Oct 05, 2011

Sprint thought that iphone could safe them SURPRISE SURPRISE iPhone is digging the grave for Sprint

41. taco50

Posts: 5506; Member since: Oct 08, 2009

iPhone 4S was their best selling device ever on opening day. Does what happens in real life even matter to you?

45. Johnny_Mnemonic

Posts: 240; Member since: Oct 05, 2011

I don't care about Sprint or iPhone what I don't like is that iPhone is taking advantage of Sprint sorry Sprint you made a bad move sleeping with the enemy. Jajjaja

61. redflag_rising

Posts: 20; Member since: Oct 26, 2011

we couldnt yet tell that its a bad move or not .. . time would tell if sprint would beneift from the iphone deal or apple just earning more revenuefrom the deal... based on the Q3 reports of sprint nothing have changed to their benefit ... but lets see with the Q4 results....

30. chip20032

Posts: 3; Member since: Jan 14, 2009

I see sprint selling out to google or apple....because both companys want there own network and they thrive on buying up companys.....but most likely would be apple because they have created this large debt they will not be able to repay... because they need to much work to there "networks and service " they have went in over there head this time....first it was nextel,then clearwire, now apple...they do not know what direction they want to go....and they keep losing more money on flawed investments...I would not bet my business on apple...espically when android has been so sucessful for the company,and has a broader and larger audience...for god sake there are 4 androids activated for every 1 Iphone...the first thing they should have done is improved there network and service...that right there is the key to bring back customers....then provide top of the line phones....but no.....they want to invest the whole company on one phone...and sorry coverage...in fact where i live the iphone is so sorry I did a speed test and my so called 3gs is barely moving at the blazing speed of .88kb per second....come on sprint it doesnt take much to figure out what draws customers and how to make proper business decisions...right now wasnt the time to launch the iphone...good bye sprint

31. chip20032

Posts: 3; Member since: Jan 14, 2009

and btw who would finace 15.5 billion dollars in debt in this day and time...are they crazy or stupid...i just dont see where that money will come from...so go ahead and sing a swan song for them

34. Johnny_Mnemonic

Posts: 240; Member since: Oct 05, 2011

There both crazy and stupid

29. ngo2dd

Posts: 896; Member since: Jul 08, 2011

For all the people who talk about network, you people have no ideal what you talking about. All sprint smartphone plan include roaming off Verizon voices and data. So the only time sprints have bad service is when both Sprint and Verizon have bad network. The Iphone is helping keep sprint people with sprint.

46. tigermcm

Posts: 861; Member since: Sep 02, 2009

you and I are probably the only ones that know about this

63. choupino

Posts: 69; Member since: May 28, 2011

You must be in the same boat with ngo2dd... Lol

62. choupino

Posts: 69; Member since: May 28, 2011

YOU ARE ACTUALLY INCORRECT MY FRIEND... IT IS YOU THAT NEEDS TO PERFORM SOME RESEARCH. Sprint and Verizon are both CDMA carriers. However, they both have different frequency ranges. It is a known and scientific fact that the lower a frequency in the wireless spectrum, the easier it is for that frequency's signal to permeate through walls and solid materials, like metal and concrete(VERIZON). Higher frequency's in the spectrum make the signal go further but they are not able to go through metal and concrete as far(SPRINT). That is why people with Verizon can get almost perfect service in an apartment building or other heavily enclosed areas and Sprint customers have difficulty doing the same. There are positives and drawbacks to both ends of that wireless spectrum issue for each of those carriers. The iPhone is a great device but seriously is not enough for Sprint to hedge such a bet on it's success. I don't believe the iPhone was an actual gamble but rather a way to stop the hemmorhaging of it's customers leaving for the iPhone. Let's call the iPhone deal Sprint's attempted "STOPLOSS" of it's customers.

26. KineticArc

Posts: 11; Member since: Jun 29, 2011

My concern is with Sprint's debt. I understand this is business and in order to progress, you need to spend capital in order to innovate. However, at this point, Sprint is merely attempting to catch up to AT&T and Verizon. Personally, I was contemplating switching to Sprint from Verizon (as my opinion is that Sprint's family plans are cheaper than Verizon's), but with the recent news of Sprint's increasing debt, I am reconsidering them as an alternative. High debt and low income usually translates to poor quality of service, customer resentment, and higher probability that irregularities could cause excessive disruption. This eventually leads to bankruptcy, since customers will eventually grow weary of the inconsistencies and frustrations of the organization. Currently, the debt to equity ratio for Sprint is double than Verizon and AT&T. Granted, Sprint is smaller. However, Sprint needs to live within its means. I feel they are taking on too much in such a small amount of time. To me, this means I have a higher probability of receiving service problems (customer and hardware service), among other issues, and thus, am reconsidering them as an alternative to my Verizon account. I can't help but wonder if there are others who feel the same as me. I want Sprint to succeed, as competition is excellent for the consumer, but am unwilling to sign a contract with an organization with significant debt (but others may be). I believe all consumers should treat contract renewals as job interviews. Review of an organization's finances (as boring and murky as it can be), future plans, and past track record should be included in the customer's decision to sign a contract. This doesn't mean all consumers should spend their cash only on Verizon and AT&T. It simply means signing a 2-year contract with an organization is a big deal. It means for the next two years, you have to live with your choice. So review of the health of the organization is important. And my personal view is that Sprint at this time, looks unhealthy.

28. snowgator

Posts: 3630; Member since: Jan 19, 2011

You are not alone. I reconsidered them as well. But most mobile consumers do not follow this type of news, and Sprint has a great chance for a short term growth. Long term, they are in quite a pickle. They now have no room for error. Danger, Will Robinson, Danger...

23. BuckeyeCadet86

Posts: 78; Member since: Oct 26, 2011

So Sprint's broke and they if anything goes wrong with their network vision plan they will go belly up. They just should have passed on the iPhone and focused on Android and WP7 and fixed the network. I work at Verizon and we have had a huge bump in activations porting in from Sprint, all of them say their coverage is horrible and thats why they are switching, most of them get iPhones!

21. redflag_rising

Posts: 20; Member since: Oct 26, 2011

sprint have invested into network enhacement remember their conf last 3 weeks ago.. clearly states that they would bump up the network and roll out lte as well.. but on the bad part of that customers that would be affected of the network vision would be having the worst reception as the towers were changed.... the iphone deal is just their lifeline so that they could do business until the expected rollout and they could match up to the competition....

20. superguy

Posts: 495; Member since: Jul 15, 2011

And Sprint thinks it'd have the money to buy T-Mo? $22 billion in the hole between LTE and iPhone, and they thought they had another $19 billion to acquire T-Mobile? I'd like some of whatever Hesse is smoking.

27. snowgator

Posts: 3630; Member since: Jan 19, 2011

Dude, you are smoking it. Sprint was in informal talks to buy T-Mobile, but it never went past that due to capital funds, wrong tech, the type of deal it would have to be, ect, ect. They could never have pulled off the deal, and they called off the talks with T-Mobile's parent company. Sprint is fighting it tooth and nail because they do not want AT&T to get that much of an advantage in subscribers and towers and all the bandwidth T-Mo has.

19. leefer77

Posts: 23; Member since: Jan 04, 2011

Sprint should have invested this kind of money improving the network. Instead they sink it into a phone that is months behind top android phones. iPhone has Siri but Android has had Vlingo for a while. Android has been using dual core processors and 8 mp cameras. Yes, it is a good phone and popular, but Sprint could probably have put that kind of money to better use.

25. Tottenham

Posts: 86; Member since: Jan 05, 2011

To leefer77 and all who rag on Sprint spending the money to acquire the iPhone (although it does seem like a grossly lopsided deal), even though many commenters may consider it to be "months behind top android phones", the simple fact is millions of people want the iPhone, and no other phone will do for them (I am not in that category). Sprint's all you can eat data (on smart phones) is a big draw, but w/o the iPhone it was losing out on a lot of customers that would just not be satisfied with anything else. I mean, if a person goes to a store to buy an iPod, and the store doesn't have it, no matter how many other MP3 players that store might have (some that others consider superior to the iPod) , most people that want the iPod will just go to another store to get what they want.

42. redflag_rising

Posts: 20; Member since: Oct 26, 2011

correct .. no question about that iphone did help gross sales for sprint and moving forward.... you could go to sprintusers.com and see a lot of threads dated months and years ago even before the apple deal, that the main reason customers leave sprint are ... #1 iphone not on the now network #2 lousy network and coverage issues....

13. lubba

Posts: 1313; Member since: Jan 17, 2011

Siri says, "good luck Sprint and thanks for giving me $15.5 billion."

12. Stoli89

Posts: 333; Member since: Jun 28, 2010

Sprint bet the farm on the success of somebody's else brand AND with NO exclusivity nor first adopter advantage. Dump the stock. Fire the management. This horse is doomed.

11. warlockz

Posts: 156; Member since: Oct 10, 2011

Thats a lot of tied up capital plus they have to borrow 7 million more risky

24. jasongohjr

Posts: 75; Member since: Sep 26, 2011

7 billion*

* Some comments have been hidden, because they don't meet the discussions rules.

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