Sprint - Nextel 2008 Annual Report Download - page 36

Segment Earnings – Wireless Business
Wireless segment earnings are primarily a function of wireless service revenue, costs to acquire
subscribers, network and interconnection costs to serve those subscribers and other Wireless segment operating
expenses. The costs to acquire our subscribers include our equipment cost in excess of the price at which we sell
our devices, referred to as equipment net subsidies, as well as the marketing and sales costs incurred to attract
those subscribers. Network costs primarily represent switch and cell site costs and interconnection costs, which
generally consist of per-minute usage fees and roaming fees paid to other carriers. The remaining costs
associated with operating the Wireless segment include the costs to operate our customer care organization and
administrative support. Wireless service revenue, costs to acquire subscribers, and variable network and
interconnection costs fluctuate with the changes in our subscriber base and their related usage, but some cost
elements do not fluctuate in the short term with the changes in our subscriber usage. The following table provides
an overview of the results of operations of our Wireless segment for the years ended December 31, 2009, 2008
and 2007.
Year Ended December 31,
Wireless Earnings 2009 2008 2007
(in millions)
Post-paid ............................................ $23,205 $ 25,994 $ 29,454
Prepaid ............................................. 2,081 1,498 1,590
Retail service revenue ............................. 25,286 27,492 31,044
Wholesale, affiliate and other revenue ..................... 546 943 1,061
Total service revenue .............................. 25,832 28,435 32,105
Cost of services (exclusive of depreciation and amortization) . . (8,384) (8,745) (8,612)
Service gross margin .................................. 17,448 19,690 23,493
Service gross margin percentage ......................... 68% 69% 73%
Equipment revenue .................................... 1,954 1,992 2,595
Cost of products ...................................... (5,545) (4,859) (5,023)
Equipment net subsidy ............................. (3,591) (2,867) (2,428)
Equipment net subsidy percentage ........................ (184)% (144)% (94)%
Selling, general and administrative expense ................ (8,659) (10,047) (11,151)
Wireless segment earnings .......................... $ 5,198 $ 6,776 $ 9,914
Service Revenue
Our Wireless segment generates revenues from the sale of wireless services, the sale of wireless devices
and accessories and the sale of wholesale and other services. Service revenue consists of fixed monthly recurring
charges, variable usage charges and miscellaneous fees such as activation fees, directory assistance, roaming,
equipment protection, late payment and early termination charges and certain regulatory related fees, net of
service credits. The ability of our Wireless segment to generate service revenues is primarily a function of:
‰revenue generated from each subscriber, which in turn is a function of the types and amount of
services utilized by each subscriber and the rates charged for those services; and
‰the number of subscribers that we serve, which in turn is a function of our ability to acquire new
and retain existing subscribers.
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