Sprint has extended the signup period for its iPhone-only Virgin Inner Circle offering for another month, to Aug. 31, with executives pointing to the model as an experimental success for its prepaid and digital strategies.
Originally slated to expire at the end of July, Inner Circle offers a year of unlimited data for $1 per line for the year for new customers who buy an iPhone, or to current Virgin users who upgrade to the Apple device (it’s $50 per month after the initial promo period). The deal is meant to solidify Virgin’s recently announced iPhone-only strategy, while diversifying Sprint’s prepaid business, which has historically been a one-trick pony hinging on the Boost youth- and urban-focused brand.
On the latter point, “we have brought Boost back to its roots, with compelling rate plans and device offers, and a brand message that appeals to the core prepaid market,” said Sprint CEO Raul Marcelo Claure, during the earnings call for its fiscal first quarter financials last week, according to a Seeking Alpha transcript of the event. “While we expect Boost to continue to be a pillar for prepaid business in 2017, we're very excited about the future of our Virgin brand as well, with the recent launch of Virgin Inner Circle…[which] also represents a new distribution model in our portfolio, as Virgin Inner Circle is only available in digital channels and in Apple retail stores.”
As a digital-first effort, Inner Circle is also part and parcel of the company’s cost-cutting efforts as it continues what it calls its “turnaround.” The carrier saw a return to profitability for the quarter, reporting net income for the first time in three years; it’s no coincidence that Sprint’s gross adds on digital channels have doubled in the quarter, and upgrades on digital channels have tripled, according to Claure. He said that going digital-first changes the customer acquisition equation “dramatically.”
“We've been able to lower subscriber acquisition costs on an ongoing basis,” he said on the earnings call. “Your cost of acquiring a customer in a digital basis is dramatically lower than the traditional basis.”
He added, “That is an important line that we look in our P&L, and it's something that we're monitoring on a daily basis, and we're going to continue to drive lower subscriber acquisition costs.”
Also with an eye on profitability, Sprint is using Inner Circle as a conduit for iPhone sales, including used and refurbished models. The carrier is expecting to get millions of devices back through its “iPhone Forever” plan, which gives annual upgrades to users—and it will then push those devices back through its other channels at high margins.
“We plan to put a lot of those into Virgin Inner Circle,” said Claure. “We have an agreement with Apple that had been granted to us that allows us to sell used or refurbished devices under the Virgin Inner Circle. So that's where we refurbish and remanufacturing those devices that is going to be an important part of the value proposition going forward.”
While it sounds like a winning effort for Sprint, not everyone is so bullish about how it’s playing out in practice. Analysts at Wave7 Research point out that the company isn’t yet making significant inroads into its overall strategy for Virgin, despite the lip service.
“Most Virgin customers—likely 90+ percent—have Android devices, and nearly all of its Android phones are under $100,” the company said in a research note. New iPhones, in contrast, cost between $280 to $550 at Virgin. At the same time, “used iPhones will be part of the Inner Circle effort and Android devices will continue to be sold through late 2017,” indicating a muddled value prop, according to the analysts.
Wave 7 noted lagging follow-through on other fronts too: “As July ended, nothing has changed at the three retailers where Virgin is sold—Walmart, Best Buy and Target—with reps saying that no training has yet occurred.” And, Virgin said back in January that it planned to hire 100 people as part of this effort and to occupy 11,000 square feet of office space in downtown Kansas City, closer to Sprint’s headquarters. Wave 7 said that Virgin’s legacy headquarters in Warren, N.J., however, appears to still be in operation.