Sprint had higher device subsidy costs in Q2

Sprint Nextel reported higher device subsidy payments as a percentage of revenue from device sales in the second quarter, according to the company's 10-Q filing with the Securities and Exchange Commission.

The carrier said that its subsidy payments rose to 170 percent of its revenue from device sales, up from 146 percent in the year-ago quarter. The percentage is the average for Sprint's devices, and does not necessarily reflect the subsidy on any given device, such as the Palm Pre. For the first half of 2009, Sprint's subsidy payments rose to 177 percent, up from 129 percent in the first half of last year.

Carriers routinely subsidize the cost of phones, thereby offering them to end users for less than the manufacturer's charge to the carrier. Carriers generally recoup the cost of the expense in monthly service charges.

Sprint's cost of products also rose in the second quarter, to $1.34 billion, up from $1.17 billion in the year-ago quarter. The carrier's equipment net subsidy rose to $845 million in the second quarter, up from $697 million in the year-ago quarter. As wireless carriers sell more subsidized smartphones, the cost of that subsidy has become increasingly important in determining how carriers' operating margins will be affected.

Other carriers are not immune to the issue. AT&T Mobility's subsidy for Apple's iPhone has been closely watched by analysts. In the second quarter, AT&T's wireless operating margin dropped to 23.8 percent, from 25.5 percent in the year-ago quarter.

For more:
- see this Reuters article [1]
- see Sprint's 10-Q filing [2]

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