I used to wonder why Indian service providers do not sell expensive devices like iPhone etc. on one or two years service contracts like their counterparts in US or Europe until I came across a report which state that Sprint Next Corp. was the latest major service provider to struggle under the weight of providing the iPhone, which it began selling during the recent quarter.
Companies like Sprint purchase the iPhone from Apple Inc., then resell it to their customers at steep discounts — essentially swallowing the difference. Carriers hope to make an eventual profit from users’ monthly subscription fees, but Sprint, AT&T and Verizon have found that big profits from the popular phone are hard to come by. Sprint saw a net loss of $1.3 billion during the quarter, a big spike from its $929-million loss in the same quarter a year earlier.
A major component of its loss was the cost of buying 1.8 million iPhones. Sprint spent about $630 million on iPhones, or 25% of all of its equipment costs — a budget that ballooned by 40% over the same period a year earlier, before the company offered the iPhone. “We continue to believe the iPhone will bring significant value to Sprint over the long term, and early results are in line with or better than our business case assumptions,” said Daniel R. Hesse, Sprint’s chief executive.
Sprint’s story is becoming a familiar one. Until January of last year, AT&T Inc. was the only carrier to offer the iPhone, and the company found that its profit margins were being squeezed by subsidizing the cost of the device.
Moral of the story is : Indian telecom entities are more shrewd than their brethern in US and they have analysed threadbare pros and cons of offering expensive devices on contract basis. That Indian service providers could be so astute and sound decision makers is a matter of great pride. I wish they had shown same wisdom in the case of getting 2G Licenses by all means.
