Sprint - Nextel 2010 Annual Report Download - page 31

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Wireless Earnings
Postpaid
Prepaid
Retail service revenue
Wholesale, affiliate and other revenue
Total service revenue
Cost of services (exclusive of depreciation and amortization)
Service gross margin
Service gross margin percentage
Equipment revenue
Cost of products
Equipment net subsidy
Equipment net subsidy percentage
Selling, general and administrative expense
Wireless segment earnings
Year Ended December 31,
2010
(in millions)
$ 21,921
3,756
25,677
217
25,894
(8,288)
17,606
68 %
2,703
(6,965)
(4,262)
(158)%
(8,813)
$ 4,531
2009
$ 23,205
2,081
25,286
546
25,832
(8,384)
17,448
68 %
1,954
(5,545)
(3,591)
(184)%
(8,659)
$ 5,198
2008
$ 25,994
1,498
27,492
943
28,435
(8,745)
19,690
69 %
1,992
(4,859)
(2,867)
(144)%
(10,047)
$ 6,776
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.
Retail comprises those subscribers to whom Sprint directly provides wireless services on our networks or networks
we utilize through MVNO relationships, such as our relationship with Clearwire, whether those services are provided on a
postpaid or a prepaid basis. Retail service revenue increased $391 million, or 2%, in 2010 as compared to 2009 and decreased
$2.2 billion, or 8% in 2009 as compared to 2008. The increase in retail service revenue was primarily driven by attracting
subscribers to the Company's National Boost Monthly Unlimited prepaid plan in addition to service revenue related to the
subscribers acquired through our fourth quarter 2009 acquisitions of Virgin Mobile and iPCS. This increase in retail service
revenue was partially offset by a decrease in postpaid service revenue driven by a reduction in the Company's average number
of postpaid subscribers of approximately 1.4 million, or 4%, in 2010 as compared to 2009. The majority of the decline in 2009
as compared to 2008 is primarily due to a decrease in postpaid service revenue driven by a reduction in the Company's average
number of postpaid subscribers of approximately 4.1 million, or 11%, for the year ended December 31, 2009 partially offset by
an increase in prepaid revenue primarily driven by attracting subscribers to the Company's National Boost Monthly Unlimited
prepaid plan.
Wholesale and affiliates are those subscribers who are served through MVNO and affiliate relationships, such as our
relationship with Clearwire, and other arrangements through which wireless services are sold by Sprint to other companies that
resell those services to subscribers. Wholesale, affiliate and other revenues, in total, decreased $329 million, or 60%, for 2010
as compared to 2009, and $397 million, or 42%, for 2009 as compared to 2008. The majority of the decrease in 2010 as
compared to 2009 was due to the transfer of 5.4 million subscribers from wholesale and affiliates into postpaid and prepaid
classifications as a result of the fourth quarter 2009 acquisitions of Virgin Mobile and iPCS. The remaining decline in 2010 as
compared to 2009 was primarily due to losses from two of our large MVNOs throughout 2009 in addition to lower revenues
received from services provided through our machine-to-machine initiative. The decrease in 2009 as compared to 2008 was
primarily due to losses from two of our large MVNOs during 2009. Approximately 41% of our wholesale and affiliate
subscribers represent a growing number of devices that utilize our network under our machine-to-machine initiative. These
devices generate revenue from non-contract usage which varies depending on the machine-to-machine service being utilized.
Average revenue per subscriber for our open-device machine-to-machine services is generally significantly lower than revenue
from other wholesale and affiliate subscribers; however, the cost to service these customers is also lower resulting in a higher
profit margin as a percent of revenue.
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