Sprint - Nextel 2006 Annual Report Download - page 50

Sprint-Nextel merger and PCS Affiliate and Nextel Partners acquisitions, is primarily due to the following
factors:
• growth in the number of subscribers purchasing our wireless prepaid service offering of 49% in 2006
compared to 53% in 2005 for a 2006 end of period wireless prepaid subscriber total of 4.0 million;
• our differentiating products and services, particularly data-related services, including those available
under our Sprint Power Vision service plans, and other non-voice services, such as instant messaging
and emails, sending and receiving pictures, playing on-line games and browsing the Internet wirelessly;
and
• selected handset pricing promotions and improved handset choices.
Our weighted average monthly service revenue per user decreased to $59 in 2006 from $62 in both 2005 and
2004, primarily due to the following factors:
• we continued to offer more competitive service pricing plans, including lower priced plans, such as
“business essentials” on both the iDEN and CDMA networks and plans that allow users to add
additional units to their plan at attractive rates, such as “add a phone” and “family plans”;
• our prepaid wireless subscribers, who generally have a lower average revenue per user, as illustrated in
the table above, increased as a percentage of our total subscriber base to 8% in 2006 compared to 6%
in 2005; and
• our integrated PCS Affiliate subscribers, who have a lower average monthly service revenue and who
will no longer be a source of roaming revenue for us; partially offset by
• the increase in data service revenues, resulting from higher usage as subscribers took advantage of our
wide array of data offerings such as short message service, or SMS, connection cards and our Sprint
Vision and Power Vision service plans.
We have limited distribution of our prepaid services, which may adversely impact our ability to add users of
prepaid services in the affected markets. We also are adjusting our credit policies in certain markets, which
may adversely impact our ability to add lower credit quality subscribers in markets with relatively tight credit
policies. We expect our weighted average monthly service revenue per user to continue to decline as a result
of decreases in pricing due to competitive market pricing, incremental customer acquisitions at lower average
revenues and existing customer migrations to lower priced plans, partially offset by expected growth in
demand for our data services. See “— Forward-Looking Statements.”
Wholesale, Affiliate and Other Revenue
Wholesale, affiliate and other revenues consist primarily of net revenues retained from wireless subscribers
residing in PCS Affiliate territories and revenues from the sale of wireless services to companies that resell
those services to their subscribers. Wholesale, affiliate and other revenues decreased 4% in 2006 primarily due
to the PCS Affiliate acquisitions, partially offset by wholesale operator additions of 1.2 million subscribers in
2006. Wholesale, affiliate and other revenues increased 47% in 2005 reflecting the growth in the wholesale
operator subscriber base of 1.5 million additions, as well as the 450,000 and 374,000 net subscriber additions
in 2005 and 2004 in the PCS Affiliate base.
Cost of Services
Cost of services consists primarily of:
• costs to operate and maintain our CDMA and iDEN networks, including direct switch and cell site
costs, such as rent, utilities, maintenance, payroll costs associated with our network engineering
employees and frequency leasing costs;
• fixed and variable interconnection costs, the fixed component of which consists of monthly flat-rate
fees for facilities leased from local exchange carriers based on the number of cell sites and switches in
service in a particular period and the related equipment installed at each site; and the variable
component of which generally consists of per-minute use fees charged by wireline and wireless
48