During this morning’s 4th quarter earnings call, Sprint CEO Dan Hesse spoke on the issue of handset financing and how it would affect Sprint going forward. Hesse stated that Sprint had no immediate plans to move to handset financing, but that the company was studying how its competitor in T-Mobile would fare with the initiative.
Compared to the conventional model for handset subsidies, where a carrier would typically purchase handsets from a manufacturer and then heavily subsidize pricing in order to draw new customers with long-term agreements, the idea behind handset financing puts more of the handset cost in the customer’s hands and in exchange the carrier lowers the monthly rate for the customer to reflect paying the increased cost of the handset, which is the most common sales model outside of North America for both handsets and service.
As T-Mobile began the calendar year abandoning traditional handset subsidies in favor of a handset financing model common to the rest of the world in order to be able to offer Apple’s stable of mobile products without putting the carrier at a serious financial risk, the carrier has yet to complete a full quarter in order for the rest of the industry to see whether the change to the down payment model of handset purchases going forward is a net positive or negative for the carrier.
Should T-Mobile be successful with its attempt to introduce the upfront financing model for handsets with all of its service plans, Hesse stated that Sprint could quickly transition to such a sales model and many analysts are already reacting positively to the statement, despite the stock’s early morning drop.
The possibility for the move to handset financing is being seen as the best way for Sprint to reduce its liabilities in attracting new customers by relying on deeper than normal subsidies for handsets and addressing the issue of its expensive iPhone purchase agreement, an agreement that has helped reach new levels of revenue in terms of new subscriber volume, but is still affecting its overall profitability, despite activating over 2 million iPhones in the 4th quarter and beating market estimates for losses on increased profits.
As Sprint still took on losses from Nextel defections from the network shutdown and Hurricane Sandy damage, the carrier still managed to post a loss for the quarter, though the loss was slightly narrower than expected. When the deal with SoftBank is completed later this quarter, both sides will be looking at ways to narrow their losses and handset financing may be the most drastic method to do just that.
However, for it to work for Sprint, it must take advantage of its own unique qualities instead of just following T-Mobile’s lead and implementation of the sales model. It can work, so long as Sprint uses common sense, and that’s something Sprint needs more of in its current state to break out of its years long doldrums against AT&T and Verizon.
Sprint also updated investors on its LTE buildout with the latest coverage target of 200 million people to fall in line with current estimates and expects it to be reached by the end up the year into the first half of next year, while it expects to be “competitive” with AT&T and Verizon by the middle of this year, though it offered no specifics on what that meant in terms of hard coverage numbers.