Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Mike McCormack – JP Morgan.
Mike McCormack – JP Morgan
Just a couple of things. First, on the subsidy cost, any sense for how that might be trending, sort of looking into next quarter? Obviously we still have a decent improvement in gross adds but paying for it on the subsidy side.
And secondly, when thinking about being a nationwide provider of service, a certain level of selling and marketing expense probably has to be there. Can you give us any sense for fixed, if you want to call it a fixed cost versus a variable cost, in the business as far as leverage goes.
And secondly, the Any Mobile, Anytime product, can you give us a sense for the early takeaways there, whether you are seeing people going up or down towards that product?
Daniel R. Hesse
Was that only three questions this time? Let me try to take them one at a time.
On the subsidy cost, fortunately or unfortunately, the mix of, in essence, smart phones continues to increase. It was actually up significantly sequentially in our third quarter mix versus our second quarter mix, and we don't see any of that abating.
The good news is ARPU is higher and churn is lower for people who go to smart phones. So from a long-term point of view, from a customer lifetime value, that is a positive trend but it does hit you in the short term when your gross adds go up in particular. And again, we don't see that declining.
Actually as we go into next year, when we expect to launch a number of multi-mode 3G/4G devices, which we think will be very hot, those will carry some significant subsidies as well. So I think it's a trend that's kind of with the industry to stay. But it's not necessarily bad for the industry health, it just changes the economics in that the subsidy expenses will be higher.
Second, with respect to selling and marketing costs, I don't think we break those out specifically, but there is no question, there is a fixed cost element. For example, retail stores and what have you, so we are hoping actually, as we look at our cost and margin performance going forward, that if we continue it improve trajectories and things like gross adds, that our costs as a percentage of revenue or the effectiveness as you think of it in terms of the cost per gross add, or what have you, will improve with volume because there are significant fixed costs.
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