Sprint - Nextel 2011 Annual Report Download - page 43

Table of Contents
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 retail
sales force for new device activations and upgrades, residual payments to our indirect dealers, payments made to OEMs for direct source equipment, payroll and facilities
costs associated with our retail sales force, marketing employees, advertising, media programs and sponsorships, including costs related to branding. General and
administrative expenses primarily consist of costs for billing, customer care and information technology operations, bad debt expense and administrative support
activities, including collections, legal, finance, human resources, corporate communications, strategic planning, and technology and product development.
Sales and marketing expense was $5.1 billion, an increase of $246 million, or 5%, in 2011 from 2010 and $4.8 billion, an increase of $322 million, or 7%, in
2010 from 2009. The increase in sales and marketing expenses for the year ended December 31, 2011 as compared to the prior period is primarily due to reimbursements
for point-of-sale discounts for iPhones, which are directly sourced by distributors from Apple and accounted for as sales expense, as well as the additional costs associated
with our increase in subscriber gross additions, slightly offset by a decrease in media spend. Point-of-sale discounts are included in the determination of equipment net
subsidy when we purchase and resell devices. The increase in sales and marketing expenses for the year ended December 31, 2010 as compared to the prior period is
p
rimarily due to the additional costs associated with our increase in subscriber gross additions combined with incremental costs associated with our business combinations
in the fourth quarter 2009, offset by a decline in marketing expenditures related to our cost cutting initiatives.
General and administrative costs were $4.0 billion, an insignificant increase of $11 million in 2011 from 2010 and $4.0 billion, a decrease of $203 million, or
5%, in 2010 from 2009. The slight increase in general and administrative costs for the year ended December 31, 2011 reflects an increase in bad debt expense partially
offset by a reduction in customer care costs as well as reductions in prepaid integration costs incurred in 2010 associated with our business acquisitions. The decline in
general and administrative costs for the year ended December 31, 2010 reflects a reduction in customer care costs and minor continued effects of workforce reductions
and cost cutting initiatives announced in 2009 offset by increases as a result of the fourth quarter 2009 business acquisitions of Virgin Mobile and iPCS in addition to an
increase in bad debt expense. Customer care costs decreased $120 million in 2011 as compared to 2010 and $87 million in 2010 as compared to 2009. The improvement
in customer care costs is largely attributable to customer care quality initiatives and price plan simplification that have resulted in a reduction in calls per subscriber, which
allowed for further optimization of call center resources. Bad debt expense was $552 million for the year ended December 31, 2011 representing a $129 million increase,
as compared to bad debt expense of $423 million in 2010. The increase in bad debt expense primarily reflects an increase in the aging of accounts receivable outstanding
greater than 60 days combined with an increase in the average write-off per account. For the year ended December 31, 2010, bad debt expense increased $31 million as
compared to bad debt expense of $392 million in 2009. The increase in bad debt expense primarily reflects 2009 reductions in allowances for bad debt due to increased
rates of recovery. We reassess our allowance for doubtful accounts quarterly. Changes in our allowance for doubtful accounts are largely attributable to the analysis of
historical collection experience and changes, if any, in credit policies established for subscribers. Our mix of prime postpaid subscribers to total postpaid subscribers was
82% as of December 31, 2011 as compared to 84% as of December 31, 2010.
Segment Earnings - Wireline
Wireline segment earnings are primarily a function of wireline service revenue, network and interconnection costs, and other Wireline segment operating
expenses. Network costs primarily represent special access costs and interconnection costs, which generally consist of domestic and international per-minute usage fees
paid to other carriers. The remaining costs associated with operating the Wireline segment include the costs to operate our customer care and billing organizations in
addition to administrative support. Wireline service revenue and variable network and interconnection costs fluctuate with the changes in our customer base and their
related usage, but some cost elements do not fluctuate in the short term with the changes in our customer usage. Our wireline services provided to our Wireless segment
are generally accounted for based on market rates, which we believe approximate fair value. The Company generally re-establishes these rates at the beginning of each
fiscal year. Over the past several years, there has been an industry wide trend of lower rates due to increased competition from other wireline and wireless
communications companies as well as cable and Internet service providers. For 2012, we expect wireline segment earnings to decline by approximately $180 to $220
million to reflect changes in
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