Responding to reports of iPhone 4S speed issues, Sprint-Nextel said Wednesday that the performance of the phone on the carrier's nationwide network has been consistent with expectations.
"We are seeing a very low return rate for this device but we are watching the reports of speed issues very closely," Sprint said.
Sprint said its own benchmark tests have showed little to no performance difference between the iPhone models it now offers and those sold by rival carriers AT&T and Verizon Wireless. Nevertheless, Sprint said it saw opportunities to optimize performance -- specifically in high-network capacity areas.
"We see this as typical optimization work and do not have any specific area of concern," Sprint said in an e-mail statement. "We are listening to our customers and working closely with our partners at Apple to ensure optimal performance of iPhone devices on our network."
According to Sprint CEO Dan Hesse, the iPhone is well on its way to breaking the previous Sprint sales record held by the HTC EVO 4G, in terms of the percentage of device buyers who are additions to Sprint in the weeks following the launch. On the other hand, Sprint's avalanche of new iPhone subscribers is also a stress test for the carrier's network.
Worth Every Penny
The unavailability of Apple's iPhone from Sprint was the No. 1 reason why customers had switched from Sprint to another network in the past -- as well as why new customers were reluctant to try Sprint, Hesse said.
"Our early results of selling the iPhone 4 and iPhone 4S have confirmed the iPhone's ability to attract new customers," Hesse told investors in a conference call Wednesday.
Sprint's iPhone deal with Apple will also provide a stress test with respect to the carrier's initial financial outlays. According to Sprint CFO Joseph Euteneuer, the cost of adding an iPhone customer to its network is roughly $200. The cost of adding an average non-iPhone customer is nearly 40 percent lower.
Still, Hesse believes Sprint's four-year iPhone contract with Apple -- which features a minimum commitment of $15.5 billion -- will prove to be worth every penny.
The customer lifetime value of an iPhone customer, Hesse said, is "at least 50 percent greater than in a typical smartphone user -- driven primarily by more efficient use of our network and lower churn."
Maximizing Profitability
Over the next four years, Sprint expects to reap huge rewards from its ability to offer the latest available iPhone models to its subscribers.
"We expect iPhone customers to be among our most profitable as the higher upfront acquisition costs are expected to be offset by longer customer tenure and lower support costs -- including data efficiency," Euteneuer told financial analysts.
Sprint undertook several measures during the third quarter to maximize the iPhone's profitability -- including the addition of a $10 surcharge to the network operator's popular unlimited data plans. Moreover, Sprint boosted the fees it charges subscribers for upgrades and early termination and bolstered its efforts to enforce existing network usage terms and conditions.
Sprint executives believe the new measures will generate an additional $1 billion to $1.2 billion from iPhone customers over the four year span of the carrier's deal with Apple. Moreover, the total value benefit from the iPhone deal for Sprint is expected to range $7 billion and $8 billion.
"As a result of the popularity of this device, we anticipate the iPhone could be 20 percent to 40 percent of our postpaid gross additions and upgrades," Euteneuer said.
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