A report this week that Sprint will soon offer the Apple iPhone on its network has excited the carrier's investors -- Sprint's stock rose about 10 percent on the news. Offering the phone would allow the carrier to better compete with its rivals' device portfolios; however, questions have arisen regarding network strain and how Sprint will handle factors like the phone's high subsidy cost.It looks like Sprint (NYSE: S) is about to join Club iPhone.
The wireless network could become the Apple (Nasdaq: AAPL) smartphone's third U.S. wireless carrier in October, just in time for the holiday season, according to a recent Wall Street Journal report. That's also the time frame in which Apple is expected to release the fifth generation of iPhone, though the company has not officially announced a date.
Sprint's stock rose 10 percent on the news Tuesday.
AT&T (NYSE: T) offered the iPhone exclusively in the U.S. from the device's introduction in 2007 until Apple added Verizon earlier this year.
Despite Sprint's stock gain, though, the news has prompted some doubts about the value of the deal for Sprint. The iPhone reportedly comes with a subsidy price tag that is larger than other smartphones. Those subsidies could cut into Sprint's margins.
On the plus side, the addition of the iPhone would put Sprint closer to an equal footing with AT&T and Verizon, much larger competitors. Verizon has roughly 106 million subscribers. AT&T has an estimated 99 million, and Sprint has 52 million. For Apple, the move is an unambiguous plus.
Sprint declined to speak with MacNewsWorld, noting the company does not comment on speculation. Apple did not respond to a MacNewsWorld's request for comments by press time.
Good for Apple - So-So for Sprint
Question have arisen regarding whether the iPhone will put strain on Sprint's network. There has also been speculation that Sprint will have to drop its unlimited data plan to protect its network.
"I don't think it's going to kill the network," Kevin Burden, VP of mobile device research at ABI Research, told MacNewsWorld. "We're at a point now where most mobile operating networks are tuned to handle volume without bringing things down. Maybe four or five years ago it would have been a problem."
The deal will most likely happen, Burden said, and he believes it will be a strong subscriber grab for Apple. "Apple needs to get as many subscribers as it can," said Burden. "They're looking at strong competition from Androids and the upcoming BlackBerry 7. They don't have the commanding lead anymore. The phones are all getting really similar. In the U.S. market, the last big thing they can do is get Sprint."
As for the question about whether the "Apple tax" in high subsidy costs will hurt Sprint, Burden believes Sprint is accustomed to subsidies. "The subsidies won't kill Sprint. It's not like they're not used to subsidies," said Burden. "It's not a new business model."
The timing of the deal is likely scheduled for October, when Apple is widely expected to release its next iPhone version to coincide with the beginning of the holiday season.
"The introduction of iPhone 5 seems like the logical moment for Sprint to launch iPhones," said Burden. "Coming out with the iPhone 4 would be silly. It wouldn't be a big deal. So you can predict when it will have it -- they'll have it with the introduction of the iPhone 5."
The Phone for the Big League
Adding the iPhone clearly ups the ante for Sprint, giving it equal footing with AT&T and Verizon in its line of devices.
"Sprint talks about how important the device portfolio is," William A. Stofega, program director, mobile device technology and trends at IDC, told MacNewsWorld. "Sprint has had some decent devices. They've done well with HTC, which runs on Android. Even so, Sprint would like to have the iPhone. Questions about the iPhone come up on their earnings calls all the time. Having the iPhone shows they're a player. In overall numbers, they may not be in the same league as AT&T and Verizon, but they're sill a player."
On the other hand, after its second-quarter earnings report, Sprint was criticized for the high costs associated with adding and retaining customers. Adding the iPhone ratchets up those expenses. "The iPhone subsidy costs hurt margins even with Verizon," said Stofega. "The iPhone is that special case all by itself. The carrier has to subsidize at a higher rate to drive and retain customers."
A Sprint move would also come at a time when Android devices are getting the cool-factor nod from consumers.
"The world is changing. Droid is getting mindshare. It's a juggernaut," said Stofega. "It can't be slowed down by anything. The Motorola acquisition could help. There has been a need for an Android platform that shows off its full capabilities and is much more integrated between hardware and software. Motorola could make that happen."
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