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Sprint CEO Dan Hesse talks about Sprint's $15 billion iPhone investment

Sprint CEO Dan Hesse discusses his company's decision to bet the farm on Apple's iPhone

By Yoni Heisler on Thu, 08/09/12 - 11:25am.

While the iPhone is now available on all three major U.S. carriers, not to mention a slew of regional carriers that most people might not have heard of, things sure looked a lot different as recently as October 2011.

Before the advent of the iPhone 4S, the only major carriers with the iPhone were AT&T and Verizon. And make no mistake about it, Sprint felt the squeeze as subscribers were increasingly fleeing in an effort to get the iPhone. As a result, Apple had some significant leverage at its disposal and was able to convince Sprint to commit to purchasing 30.5 million iPhones over the course of four years - regardless of whether or not they could sell them all. In other words, Sprint was in a bind and decided to bet the farm on Apple's iPhone.

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And because Sprint was and continues to heavily subsidize the iPhone, CEO Dan Hesse reportedly told the company's board of directors that the company wouldn't see a return on their iPhone investment until 2014.

The Wall Street Journal reported at the time:

Directors debated what they had just heard. Some worried the payoff would be too long in coming. One member questioned whether the multiyear deal might outlast the iPhone’s popularity. To sell that many iPhones, Sprint would have to double its rolls of contract customers, convert all of them to the Apple device or a combination of the two.

The board ultimately signed off on what the company internally called the “Sony” project, concluding Sprint couldn’t compete otherwise. Directors figured, “How can we pass this up? We have to have it,” the person familiar with the matter said.

Truth be told, Sprint was really left with no other choice. After all, Hesse had previously explained that the iPhone, or Sprint's lack thereof, was the main reason for subscriber defections.

Now, nearly a year later, how is Sprint's iPhone gamble paying off?

Well, it seems to have been a wise move.

Back in February 2012, Sprint announced as part of its earnings release that iPhone users accounted for 45% of all new Sprint subscribers. What's more, the quarter in which the iPhone 4S launched on Sprint resulted in the largest number of new subscribers in a quarter registered by Sprint in over six years.

And in an interview with Forbes a few months back, Hesse explained that while iPhone subsidies may be higher than they are for Android handsets, the iPhone remains a worthwhile investment because the device is more data efficient and keeps subscribers from leaving for other carriers.

And now with the iPhone 5 unveiling fast approaching - September 12th in case you missed it - All Things D relays some choice quotes from Hesse wherein the Sprint CEO explains how the iPhone investment continues to pay dividends.

“You really don’t want to be on the outside,” Hesse said, explaining that Apple's iconic device was conspicuously not available on Sprint for quite some time.

And while Sprint had wanted the iPhone for a while, it had to wait for Apple to get on board to finally make it happen.

“I think the No. 1 thing was getting the call from Apple that they were interested in at least having the opportunity,” Hesse added. Of course, making the decision to get into bed with Apple wasn't easy for everyone. Again, members of the Sprint board were wary of the financials of the agreement.

“We committed to $15.5 billion over four years in purchases,” Hesse said. “That’s a large commitment.”

He said Sprint looked at Apple and its popularity, and “we saw no reason to bet against Apple.”

And so far Hesse seems to have made the right call.

In a recent interview with USA Today, Hesse was asked again about Sprint's decision to spend billions to get the iPhone.

Hesse responded:

I've said everything has to make sense economically. But we knew our customers wanted the ability to choose the iPhone. We clearly looked at economics both short-term and long-term. Over time it starts to be cash-flow positive. We saw no reason to bet against Apple. You really don't want to be on the outside of that. From a brand perspective, you like having your brand associated with very strong great brands, and nobody can debate just what a great brand Apple has. We thought the benefits greatly outweighed the risks.

Sprint still needs to boost its earnings, but investors see brighter times ahead as the stock has surged in recent weeks to levels not previously seen in months.