Sprint Nextel Corporation is earning only $2 average revenue per user (ARPU) from the 400,000 mobile users who bought a Kindle in Q1 2009, according to recent analysis. But huge profit margins mean the mobile virtual network operator (MVNO)-like deal with Amazon is paying off handsomely for the struggling operator.
Roger Entner, senior vice president of Nielsen Media Research's telecom practice, estimated that Sprint earns $56 for the average postpaid subscriber, but only $2 for every Sprint Kindle subscriber.
Despite the US industry's traditional focus on mobile ARPU as a key measure of success, the Kindle was a winner for Sprint, Entner said, particularly when he looked at its estimated profit margins.
Since Amazon handles all the billing, support, customer acquisition, marketing, activation and de-activation just like an MVNO, the cost per subscriber for Sprint is minimal.
"They're making, since it's just data, probably $1.70, $1.80 [gross] profit on those $2," Entner said.
By contrast, he estimated that the gross profit for a $56 postpaid subscriber is only around 50% because Sprint spends about $28 per subscriber on a variety of fixed costs.
"Sending you a bill costs somewhere around $2. That's just sending a bill to you every month," he said. "Customer service, it's like $5 to $7 [per support call]. The average customer calls once every other month. Nobody calls [Sprint] for the Kindle."
Sprint's Kindle deal is far and away the most popular partnership of its type, Entner said, but lucrative opportunities where carriers act similarly to MVNOs for specific, service-tied devices are abundant.
"In a way, you are revolutionizing the way a product is being delivered," he said. "The profit margins are through the roof."
Similar revolutions might be possible with more specialized applications, ranging from pacemakers to electric meters, with more popular, consumer-oriented applications including GPS devices that could retrieve traffic updates, for example.
"I think the deal Amazon has with Sprint, far from being unreasonable, is the model of the deals that service providers would like to have with over-the-top players," said Tom Nolle, president of CIMI Corp. "The service-built appliances are really kind of a game changer. They could be, in effect, an MVNO relationship."