Cricket Wireless 2012 Annual Report Download - page 70

Cost of Service
Cost of service increased $53.0 million, or 5.4%, for the year ended December 31, 2012 compared to the prior
year. As a percentage of service revenues, such expenses increased to 35.1% from 34.7% in the prior year. Principal
factors contributing to the increase in cost of service were the inclusion of Muve Music in service plans for our
Android-based smartphones and increased roaming cost in connection with our unlimited nationwide service plans.
Cost of service increased $140.6 million, or 16.7%, for the year ended December 31, 2011 compared to the
prior year. As a percentage of service revenues, cost of service was 34.7% compared to 33.9% in the prior year.
Principal factors contributing to the increase in cost of service included increased telecommunications taxes due
to both a 9.2% increase in the weighted-average total number of customers and increases in federal and state tax
rates, our increased penetration in existing markets with higher tax rates and increased roaming costs in
connection with the introduction of our unlimited nationwide service plans.
Cost of Equipment
Cost of equipment decreased $1.7 million, or 0.2%, for the year ended December 31, 2012 compared to the
prior year primarily due to an 8.9% decrease in the number of devices sold, partially offset by a 9.6% increase in
the average cost per device sold.
Cost of equipment increased $225.9 million, or 38.2%, for the year ended December 31, 2011 compared to
the prior year. A 27.2% increase in the average cost per device sold was accompanied by an 8.7% increase in the
number of devices sold. The increase in the average cost per device sold to new and upgrading customers during
the period was largely attributable to our introduction of smartphones in 2010, as well as customer acceptance of
our new Muve Music enabled devices in 2011.
Selling and Marketing Expenses
Selling and marketing expenses decreased $19.3 million, or 5.2%, for the year ended December 31, 2012
compared to the prior year. As a percentage of service revenues, such expenses decreased to 11.9% from 13.1%
in the prior year. This percentage decrease was largely attributable to the increase in service revenues and the
decrease in selling costs primarily due to the sale and transfer of select company-owned retail locations to
indirect dealers, which lowered our fixed costs associated with store facilities and employee-related costs. These
decreases were partially offset by the increase in advertising expense in the third quarter of 2012 associated with
the launch of our new devices and service plans.
Selling and marketing expenses decreased $45.1 million, or 10.9%, for the year ended December 31, 2011
compared to the prior year. As a percentage of service revenues, such expenses decreased to 13.1% from 16.7%
in the prior year. This percentage decrease was largely attributable to a 1.5% decrease in media and advertising
costs as a percentage of service revenues, reflecting higher spending in the corresponding period of the prior year
in connection with the launch of our new “all-inclusive” service plans and smartphones, as well as an increase in
service revenues and consequent benefits of scale.
General and Administrative Expenses
General and administrative expenses decreased $6.6 million, or 1.9%, for the year ended December 31,
2012 compared to the prior year. As a percentage of service revenues, such expenses decreased to 11.8% from
12.6% in the prior year primarily due to continued benefits from our cost-management initiatives and the
increase in service revenues.
General and administrative expenses decreased $6.0 million, or 1.7%, for the year ended
December 31, 2011 compared to the prior year. As a percentage of service revenues, such expenses decreased to
12.6% from 14.6% in the prior year primarily due to continued benefits from our cost-management initiatives
and the increase in service revenues and consequent benefits of scale.
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