Sprint buys 30.5M iPhones from Apple for $20B in 'bet-the-company' move
Sprint Chief Executive Dan Hesse reportedly told his company's board of directors in August that Sprint will likely lose money on the mega-deal until 2014, but he is banking that the addition of the iPhone will help turn around the company that is the No. 3 largest wireless provider in the U.S.
"Mr. Hesse told the board the carrier would have to agree to purchase at least 30.5 million iPhones over the next four years — a commitment of $20 billion at current rates — whether or not it could find people to buy them, according to people familiar with the matter," the report said.
"in order to keep the price people pay for the phone low and competitive with rivals, Sprint would be subsidizing the cost of each phone to the tune of about $500, which would take a long time to recoup even at the high monthly fees iPhone users pay."
One person familiar with the company's approach says it's a "bet-the-company" level move that could make or break Sprint. It was the Journal that first reported in August that Sprint would offer Apple's fifth-generation iPhone at launch in the U.S. alongside competing carriers AT&T and Verizon.
Though the plan was initially met with concern by the board, they are said to have approved the massive $20 billion deal, dubbed the "Sony" project internally. Those on the board reportedly believed that Sprint would not be able to compete with AT&T and Verizon if it could not offer the iPhone.
Together, AT&T and Verizon sold nearly 12 million iPhones in the first half of 2011, and sales for Apple's handset continue to grow. The report noted it's possible that Sprint, which currently has 52 million customers, could conceivably sell all of the 30.5 million handsets if it were to capture a third of U.S. sales.
Sprint's apparent desperation was hinted at last month, when Hesse admitted that the lack of the iPhone is the "number one reason" that customers leave his company for competitors AT&T and Verizon.
For years, the iPhone was exclusive to AT&T in the U.S., but that changed this February when availability expanded to Verizon, the largest wireless carrier in the U.S.
The addition of Sprint would make Apple's hot-selling handset available on the three largest carriers in the U.S. That would only leave out T-Mobile among the "big four," though AT&T hopes to acquire T-Mobile with regulatory approval.
Executives at T-Mobile signaled last week that they will not have access to the iPhone 5 at launch, but also made clear that they hope a deal can be worked out with Apple to offer the company's smartphone. In a letter to the carrier's customers, T-Mobile's chief marketing officer suggested that customers take a close look at the carrier's lineup of Android-powered smartphones instead.