Sprint - Nextel 2006 Annual Report Download - page 52

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subscribers, which may result in an increase in handset subsidies in future periods. See “ — Forward-Looking
Statements.”
Selling, General and Administrative Expense
Sales and marketing costs primarily consist of customer acquisition costs, including commissions paid to our
indirect dealers, third-party distributors and direct sales force for new handset activations, upgrades, residual
payments to our indirect dealers, payroll and facilities costs associated with our direct sales force, retail stores
and marketing employees, advertising, media programs and sponsorships, including costs related to branding.
General and administrative costs primarily consist of fees paid for billing, customer care and information
technology operations, bad debt expense and back office support activities, including collections, legal,
finance, human resources, strategic planning and technology and product development, along with the related
payroll and facilities costs.
Sales and marketing expense increased 52% in 2006 from 2005 as compared to an increase of 55% in 2005
from 2004, primarily due to the launch of new branding initiatives and advertising campaigns in connection
with the Sprint-Nextel merger and increased sales and distribution costs to support a larger subscriber base
primarily due to the Sprint-Nextel merger and PCS Affiliate and Nextel Partners acquisitions. Additionally, we
increased the compensation of our post-paid third-party dealers in the fourth quarter 2006 for both new
subscriber additions and upgrades.
General and administrative costs increased 62% in 2006 from 2005 as compared to an increase of 49% in
2005 from 2004, primarily due to the Sprint-Nextel merger and the PCS Affiliate and Nextel Partners
acquisitions, as well as:
• an increase in bad debt expense reflecting an increase in the number of subscribers and an increase in
involuntary churn. Bad debt expense for 2006 increased 88% from 2005, and increased 112% from
2004 to 2005. The allowance for doubtful accounts as a percentage of outstanding accounts receivable
was 9% in 2006 and 7% in 2005;
• an increase in our customer care expenses related to call volume increases due to a larger subscriber
base and to increases in customer retention efforts; and
• an increase in information technology and billing expenses to support a larger subscriber base in
addition to an increase in credit card fees as more subscribers submit invoice payments through credit
cards.
We expect certain selling, general and administrative expenses to continue to increase primarily as a result of
increased costs associated with customer acquisition and retention, including increased costs related to
strengthening third party distribution channels, and additional marketing, advertising and brand awareness
initiatives and customer care and information technology and billing activities. See “ — Forward-Looking
Statements.”
Wireless Segment Earnings
Wireless segment earnings increased 68% in 2006 from 2005 as compared to an increase of 69% in 2005 from
2004, primarily due to increased revenue resulting from the additional subscribers as a result of the Sprint-
Nextel merger and the PCS Affiliate and Nextel Partners acquisitions.
50