Sprint Tumbles After Report of $20B IPhone Deal

By Scott Moritz - Oct 4, 2011 3:36 AM GMT+0700
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A customer is shown at a Sprint store in Boston. Photographer: JB Reed/Bloomberg

Sprint Nextel Corp. (S), the third- largest U.S. wireless operator, tumbled after a report the company had committed to buy at least 30.5 million iPhones over four years, which would cost $20 billion at current rates.

Sprint fell 31 cents, or 10 percent, to $2.73 at 4:15 p.m. in New York Stock Exchange trading. To win the right to carry the device, Sprint had to commit to buying the phones from Apple Inc. (AAPL) whether Sprint could find buyers for them or not, the Wall Street Journal reported.

Sprint is struggling to compete against Verizon Wireless and AT&T Inc. (T), the two largest U.S. wireless operators, which are both able to offer the Apple device. In July, the Overland Park, Kansas-based company reported its 15th consecutive quarterly loss and lost more contract customers than some analysts had estimated.

Since Apple’s iPhone helps draw high-spending contract customers, wireless operators are willing to agree to long-term supply contracts, Mike Abramsky, an analyst with RBC Capital Markets in Toronto.

“The commitment makes sense,” said Abramsky, who has an “overweight” rating on Apple and doesn’t cover Sprint.

The wireless operator will likely lose money on the deal with Apple until 2014, the Wall Street Journal said, citing people familiar with the matter. Wireless operators including Sprint subsidize the costs of phones for consumers and make up the money through service revenue.

Sprint plans to offer the iPhone with unlimited data service to distinguish itself from its larger rivals, people familiar with the matter said last month. That approach may help the company draw customers concerned about extra charges for using applications such as Netflix Inc. (NFLX)’s movie service or Pandora Media Inc.’s streaming music.

Bill White, a spokesman for Sprint, declined to comment. The company’s stock has dropped 35 percent this year.

To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net