Sprint's most loyal customers are its worst off, says report

The Apple iPhone 4 may be Sprint's most expensive device to support, but it expects the smartphone to help it reduce churn and attract new customers (CP: Sprint defends iPhone decision, will need up to $7 billion in financing help). An article in today's Wall Street Journal, however, suggests that a program at the very opposite end of Sprint's pricing spectrum is actually helping it to do the same — and even better.

Assurance Wireless, offered through Sprint's Virgin Mobile, is one of a handful of brands funded through a government subsidy program called Lifeline, which uses taxes charged to phone bills across the country to pay carriers up to $10 a month per customer to extend toward low-cost or free wireless plans to low-income Americans, said the report. While the margins are extremely thin, the carriers are able to make a small profit.

A sister subsidy called Link-Up American helps with landline installation costs.

Assurance offers a free feature phone and 250 free voice minutes a month, though customers can pay to add texts or minutes — an additional 250 minutes can be added for $5, for example. Customers may qualify based on household income, or if they participate in a handful of government programs such as Medicaid, Food Stamps and Federal Public Housing Assistance.

"Who out there is going to drop their free phone service?" Piper Jaffray Analyst Chris Larsen," told the Journal, and indeed, as Assurance has grown, Sprint's churn levels have fallen.

More notably, in a saturated wireless market and a limping economy, Assurance has helped Sprint to add nearly 2 million new subscribers.

"In any given period, Sprint has said, more than 50% of its net new customers have come to the carrier via the free source," the Journal reported.

During the third quarter, Sprint announced Oct. 26, it added nearly 1.3 million net new wireless subscribers, the most it has added during a quarter in the last five years.

Verizon Wireless and AT&T also offer discounted plans through the Lifeline program, as does the América Móvil brand (owned by Mexican billionaire Carlos Slim) under the name SafeLink — which is actually the largest such program. Though, at $10 for an extra 50 minutes of talk time, it's not the greatest deal for users needing to supplement the offer.