Apple’s iPhone is slowly spreading its tentacles into the prepaid market after dominating the post-paid market. Sprint‘s pay-as-you-go Virgin Mobile brand is planning to offer the iPhone without a contract as soon as July 1st, according to the Wall Street Journal’s sources. If the report is true, the carrier will become the second wireless operator following Leap Wireless to offer the popular smartphone with a prepaid service. While the pricing details are still unknown, if the Leap deal is any indicator, Sprint will be offering lower subsidies on the iPhone with a less expensive prepaid plan.
Offering the iPhone to its prepaid subscribers will help Sprint expand its user base and meet its expensive commitment to Apple made late last year. Moreover, owing to the more widespread coverage of its network as compared to Leap’s, Sprint will be able to attract more prepaid customers to make the switch to the iPhone on its network. We have a price estimate of $3.67 for Sprint, about 50% ahead of the current market price.
Sprint’s decision to carry the iPhone came as a solution to its continued postpaid subscriber loss problem as the company believed that the iPhone will help attract more number of subscribers to its core CDMA platform and mitigate the loss of subscribers on the iDEN platform. However, since Sprint was a tad late in jumping on the iPhone bandwagon, it had to make a huge upfront commitment of nearly $15.5 billion to Apple over a four-year period. This was a massive bet considering that the company has a highly leveraged balance sheet with about $26 billion in debt on its books compared to a market capitalization of only around $7.5 billion.
However, with the company reporting two strong quarters of postpaid net adds on its core Sprint network since the iPhone addition, we believe the bet is working out for Sprint. Sprint added a net 263,000 subscribers to the Sprint platform last quarter, below the previous quarter’s 539,000 but a tad more than net adds posted a year ago. This came even as an increasingly saturated wireless market caused behemoths Verizon and AT&T to add fewer postpaid subscribers this quarter.
The carrier has sold 3.3 million iPhones so far in the first two quarters since the iPhone made its debut at Sprint. If Sprint is able to maintain this rate for the next four years and sells an average of 6 million iPhones every year, it will only just be able to meet its $15.5 billion minimum commitment at a cost of $649/iPhone. Of course, Sprint has only just started out with the iPhone and it could sell more than 6 million iPhones every year. But if it comes out with a prepaid iPhone and manages to get a few more iPhones out of the door, the target will become more comfortable for Sprint to achieve.
-FRB-
