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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1. mctcm

Posts: 204; Member since: Oct 19, 2011

Siri, will the iphone save sprint?

3. ps1001

Posts: 65; Member since: Dec 14, 2010

"no... sprint is going down sooner rather then latter..."

18. threeline

Posts: 313; Member since: Sep 11, 2011

"Sprint, you can't handle the truth!" (Siri in Jack Nicholson's voice)

37. jogutier

Posts: 324; Member since: Feb 12, 2010

I agree, and Verizon is ready to purchase them. Especialy cause Sprint is making it easier by upgrading their towers to LTE. LOL

51. jsjr76

Posts: 24; Member since: Sep 28, 2010

Sprint isn't going down any time soon OR later. They are making themselves a more valuable company by carrying the iPhone because the damn thing sells like water in the desert. People don't stand in lines for Androids and they rarely sell out. IPhones??? ALL THE DAMN TIME. Its a smart move and I think a man like Dan Hesse commands a little respect. Undegrad from Notre Dame...MBA from Cornell...MSc from MIT... the man is damn smart and hes kept this ship going when it almost sunk before he took over. He said to give him 5 years and in a year and a few months it will be five years. In that time he has earned more awards for customer service, call quality, and data transfer reliability than in the previous ten for Sprint. He grabbed two of the biggest phones in history (EVO 4G and the iPhone) and he's rolling out LTE in 2012/2013. And Verizon can't buy them. It'll violate anti-trust laws. However, its been said that a European company is looking, as are a few American suitors. So don't count Sprint out. Mr Hesse is doing exactly what he said he could and would do. Being expensive and arrogant doesn't make VZW or Crap T&T better. Last time i checked AT&T ranked dead last in 19 out of 25 major metropolitan areas. Sprint? NONE

54. mooney73

Posts: 9; Member since: Oct 18, 2011

It doesn't take an Ivy League sheepskin to recognize the irony of taking out a loan, ultimately sourced from China, that will be used to purchase the right to peddle disposable consumer goods, ulitmately sourced from China. I'm sure there were some "impressive" diplomas hanging in the executive offices of AIG, Goldman-Sachs, GM, Chrysler, and more... Borrowing the equivalent of your market value to make a purchase in that sum for the right to sell the products of a company who just lost their executive and creative leadership sure sounds like a "hail Mary" play to me... a move that Hesse -- or any Notre Dame grad/fan -- knows all too well.

56. BReND0

Posts: 74; Member since: Dec 07, 2010

totally agree

59. threeline

Posts: 313; Member since: Sep 11, 2011

Yes, this was a bad move for Dan H especially for a refreshed version of the iPhone and not the iPhone 5. Most of their new customers will be stuck with the 4 or 4s and the people who were on the fence about getting a Sprint iPhone like me(10 year sprint customer) has made the decision to stay with Android especially after seeing ICS. I don't miss what I never had. Android comes on so many different phones, and people like that. Dan H should've held out longer because Apple kind of needed Sprint as well because Apple needed access to Sprint's 50mil customers to compete with Android knowing they didn't have a new model to release this year and Moto, HTC, and Samsung was loading the guns with killer high-end devices and Apple had nothing new this year. So they could've made Apple craw to them had they played their cards right buy saying if you want access to my customers then make me a killer offer because we are gonna be okay without the iPhone as long as we keep a great selection of high-end Androids. VZW didnt sell their soul, but they have a balanced attack with both the 4 and 4S and a ton of Androids from entry level to Super high end dual-core models. Sprint should've waited for the iPhone 5 and focused on Android for now, their bread and butter.

7. lubba

Posts: 1313; Member since: Jan 17, 2011

This is by far the best comment ever! Lolzzz!

14. andro.

Posts: 1999; Member since: Sep 16, 2011

once you get into agreements like this with apple its game over,they like to swallow people whole and spit out the bones......while also pocketing all their money,islaves get this treatment all the time

35. JeffdaBeat unregistered

I don't think it's really that more than Sprint has to prove that it isn't some poor man's company. That the struggle T-Mobile is having as well. No one takes "pride" in carrying T-Mobile and rarely is that the case with Sprint. In order for Sprint to compete, it has to have the same offerings as its competitors. Whether or not you like the iPhone, people want it. And Sprint not offering that gives their customers one choice if they do want it...switch. Sure, not having it isn't going to make everyone run away from Sprint, but it can make a few million people leave year after year. That's not good for stocks at all... Still this is a Hail Mary pass like I've not seen in a while. Sprint needed the iPhone to help perception, but to bet so much is either going to bring them back or kill the company now and forever...especially bettering with more money than they have. Good luck Sprint, I for one hope you win.

38. jogutier

Posts: 324; Member since: Feb 12, 2010

LMAO! Good one....

52. SuperEd

Posts: 132; Member since: Oct 18, 2011

Bye bye SPRINT. They are going to go down HARD. Windows Phone is going to put the nail in the coffin. oh well.

2. The_Miz

Posts: 1496; Member since: Apr 06, 2011

Well Sprint wanted the best phone on the market.

5. Whateverman

Posts: 3295; Member since: May 17, 2009

Yeah, but they'll had to settle for the iPhone 4S instead, because the Galaxy Nexus is going to VZW. Com'on, its okay to laugh. You know I gotcha! :)

9. arcq12

Posts: 733; Member since: Oct 13, 2011

It will also go to Sprint.

17. threeline

Posts: 313; Member since: Sep 11, 2011

I was told by a Sprint Sales Rep that they were getting a phone identical to the Galaxy Nexus called the Droid Prime sometime next year. He seemed pretty sure about it, but then again he prolly didn't think he was talking to someone that has actually been scouring the net looking for any info possible of the GN going to Sprint. I dont want to wait until next year because other ICS phones will be coming out and I think now updates will be much easier for manufacturer's to deliver because they're gonna start easing up on the skins, i.e(Sense, TouchWiz) with ICS. I would get the Droid Razr or Rezound if I was on VWZ.

22. BuckeyeCadet86

Posts: 78; Member since: Oct 26, 2011

Verizon does have an exclusive on the Galaxy Nexus, but it is only an exclusive window. Sprint will not ever get a phone called the "DROID Anything" because Verizon holds the exclusive contract with LucasArts for the branding rights.

16. The_Miz

Posts: 1496; Member since: Apr 06, 2011

Do you realize how wong you are? The Galaxy Nexus is not VZW exclusive. Plus the iphone 4s IS the best phone on tge market to a lot of people.

36. crankyd00d

Posts: 191; Member since: Oct 17, 2011

In United States it is a timed exclusive. If you're going to point people wrong at least get your facts straight, I mean we all know you're always wearing your Apple Blinders® but too much of anything is not good for you, especially for your brain

47. The_Miz

Posts: 1496; Member since: Apr 06, 2011

That doesn't make it any more exclusive than the Galaxy S2 was on Sprint. Maybe you should focus more on facts and less on using predictable insults. Btw, those that are thumbing my comments down, keep doing so. You're only proving me right and you certainly aren't hurting my feelings lol.

6. Sniggly

Posts: 7305; Member since: Dec 05, 2009

Anyone who ever doubted me when I said that Apple takes the carriers to the cleaners, please feel free to admit you were wrong starting now.

15. The_Miz

Posts: 1496; Member since: Apr 06, 2011

You first.

32. Johnny_Mnemonic

Posts: 240; Member since: Oct 05, 2011

Two thumps up sniggly

39. taco50

Posts: 5506; Member since: Oct 08, 2009

You're wrong. No one forced Sprint into this deal. They begged for it. CEO says "it's worth every penny"

43. Sniggly

Posts: 7305; Member since: Dec 05, 2009

Did I say that this was a forced deal? No. Did I say that Sprint doesn't think the deal is somehow worth it? Nope. All I said was that holy s**t, Apple is definitely getting the far better end of the bargain here.

48. The_Miz

Posts: 1496; Member since: Apr 06, 2011

It's clear up above what you said, Sniggly. Just acknowledge it rather than backpedal on it.

53. Sniggly

Posts: 7305; Member since: Dec 05, 2009

I am acknowledging what I said. Sprint agreed to a deal where Apple will benefit far, far more than Sprint will. It's like overpaying for a used car: you think you're benefitting, you agreed to the deal voluntarily, but you got the short end of the stick while the used car salesman laughs all the way to the bank.

8. redflag_rising

Posts: 20; Member since: Oct 26, 2011

sprint have just acquired the iphone as their saver... ceo dan himself admitted that the reason of the thousands of post paid churn are because of the iphone.. not the best phone but one of the most popular... sprint have a lot of phones that are great and much better than the iphone...

10. arcq12

Posts: 733; Member since: Oct 13, 2011

I agree that iPhones can snag some gross add sales for Sprint but in my opinion, it shouldn't be prioritized. Better network implementation and enhancements should be prioritzed. It's one of the biggest reason why customers are leaving, and less gross add sales because a lot more areas aren't covered. They have the most value and best plans around but it's useless if they do not cover more as much as AT&T and Verizon do.

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