NEW YORK (Reuters) - Sprint Nextel Corp (S.N) took on sharply higher subsidy payments in the second quarter, driven by the rising popularity of smartphones and increased competition among U.S. mobile operators, the company said in its quarterly report filed with regulators.
Sprint, the exclusive U.S. provider for Palm Inc’s PALM.O Pre smartphone, said its second-quarter subsidy payments rose to 170 percent of its revenue from device sales, compared with 146 percent in the same quarter a year ago.
Since most U.S. consumers already have mobile phones, operators have been depending more and more on offering fancier phones, and shouldering part of the cost of those phones themselves, to help them to lure customers from rivals or convince existing subscribers not to switch service.
For a device such as the Pre, which is sold to consumers for $200, a 170 percent subsidy would imply that Sprint pays around $340 per phone sold. A Sprint spokesman noted that the percentage represented the average subsidy for all phones sold and would not disclose subsidies paid for specific devices.
Sprint, the No. 3 U.S. mobile service, highlighted Pre and BlackBerry Tour from Research In Motion RIM.TO, as key devices in its efforts to improve customer retention.
“I definitely think the higher handset subsidy cost is a reflection of strong Palm Pre sales as well as overall smartphone sales,” said Soleil Nelson Alpha Research analyst Michael Nelson.
It is also a trend affecting Sprint’s rivals Verizon Wireless, a venture of Verizon Communications (VZ.N) and Vodafone Group (VOD.L), and AT&T Inc (T.N), the exclusive US provider for Apple Inc’s (AAPL.O) iPhone, Nelson said.
In comparison, Sprint’s subsidy payments in the second quarter of 2008 also saw a sharp increase to 146 percent from 105 percent in the second quarter of 2007.
For the first six months of the year Sprint, the No. 3 U.S. mobile provider, said that subsidies had risen to 177 percent compared with 129 percent in the first half of last year.
Reporting by Sinead Carew; Editing by Phil Berlowitz