Sprint - Nextel 2013 Annual Report Download - page 38

Table of Contents
$69 million tax benefit resulting from the resolution of various federal and state income tax uncertainties. The income tax expense for 2011 also includes a $59
million expense resulting from changes in corporate state income tax laws. We do not expect to record significant tax benefits on future net operating losses until
circumstances justify the recognition of such benefits. Additional information related to items impacting the effective tax rates can be found in the Notes to the
Consolidated Financial Statements.
Segment Earnings
- Wireless
Wireless segment earnings are a function of wireless service revenue, the sale of wireless devices and accessories, 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 the
net cost 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 these changes.
As shown by the table above under "Results of Operations," Wireless segment earnings represented approximately 90% of our total consolidated
segment earnings (loss) for the Successor 2013 period. The wireless industry is subject to competition to retain and acquire subscribers of wireless services.
Most markets in which we operate have high rates of penetration for wireless services. Wireless carriers accordingly must attract a greater proportion of new
subscribers from competitors rather than from first
- time subscribers. Within the Wireless segment, postpaid wireless services represent the most significant
contributors to earnings, and are driven by the number of postpaid subscribers to our services, as well as ARPU. Wireless segment earnings have declined over
the last several years, primarily resulting from subscriber losses associated with our Nextel platform offerings as well as increased equipment net subsidy from
smartphones. Most recently, our decision to shut
- down the Nextel platform accelerated the loss of subscribers on that platform; however, we focused our
efforts on recapturing these subscribers on our Sprint platform, resulting in the recapture of approximately 2.6 million Nextel platform postpaid subscribers
beginning with the first quarter 2011 through June 30, 2013, which was when the Nextel platform was shut
- down. In addition, we have taken initiatives to
strengthen the Sprint brand, continue to increase market awareness of the improvements that have been achieved in the customer experience, and provide a
competitive portfolio of devices and service plans for subscriber selection.
In late 2013, we introduced new service plans, which include device payment through installment billing, that allow subscribers to forgo traditional
device subsidies in exchange for lower monthly service fees, early upgrade options, or both. If the adoption rates of these plans increase as we expect
throughout our base of subscribers, we expect to see a decline in ARPU in 2014 due to lower service pricing associated with our Framily plan as compared to our
traditional plans. However, we expect reduced subsidy expense associated with our Framily plan to more than offset these declines. We also expect the number
of tablet and connected device subscribers as a percentage of the total postpaid subscriber base to increase in 2014, which would have a dilutive effect on
ARPU.
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