Sprint Nextel (NYS: S) , which has made no secret about its desire to add postpaid subscribers and paid $15.5 billion over four years to sell Apple's (NAS: AAPL) iPhone to get them, is also relying heavily on low-income prepaid customers for growth. According to a report in the Wall Street Journal, more than half of Sprint's net new customers in any given period have come from its Assurance Wireless brand, targeted at low-income subscribers.
Assurance, which Sprint launched in 2010, provides a free phone and 250 voice minutes per month to qualifying customers, and is a part of a government subsidy program called Lifeline. Customers who qualify are often those who qualify for other federal benefit programs such as the Supplemental Nutrition Assistance Program (SNAP, or food stamps).
Sprint does not disclose how many Assurance Wireless customers it has, but according to the Journal, the company now counts a little under 2 million total customers, and the brand is available in 30 states and the District of Columbia. Sprint had 53 million total subscribers at the end of the third quarter.
Despite Sprint's reliance on Assurance customers, not all of the carrier's growth comes from the brand. In the third quarter, for example, Sprint added nearly 1.3 million net wireless customers, including net additions of 441,000 retail subscribers and net additions of 835,000 wholesale and affiliate subscribers as a result of growth in MVNOs reselling prepaid services. Sprint lost around 44,000 net postpaid subscribers during the quarter, narrower than the carrier's loss of 107,000 in the third quarter of 2010.
Sprint is not the only carrier using Lifeline. Verizon (NYS: VZ) Wireless and AT&T (NYS: T) Mobility also use the program to offer plans to low-income customers. América Móvil's U.S. TracFone unit is the largest Lifeline service provider via its SafeLink offering, which counts more than 2 million customers (TracFone had 19.3 million total subscribers at the end of the third quarter). SafeLink is available in 36 states and the District of Columbia.
What makes Sprint's use of Assurance for growth so striking is the emphasis that it has put on its relationship with Clearwire (NAS: CLWR) for a 4G network and devices as well as the lengths it has gone to get the iPhone. "Unfortunately, there's a large market of customers who are eligible based on their poverty level," John Carney, Sprint's senior vice president of consumer marketing, told the Journal. "This is not a customer, without subsidy, we would have gone after originally. We wouldn't have been able to make money."
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