Can government subsidies help Sprint Nextel (S) bounce back? Perhaps so, in a way you may not think.

Sprint, which reported fourth-quarter earnings on Thursday, seems to be having success with its Assurance Wireless brand, a prepaid offering. Sprint launched the government-subsidized Assurance program in early 2010. Sprint now markets the Assurance brand in 22 states and Washington, D.C.

Sprint expanded the Assurance brand to Pennsylvania today.

According to Assurance Wireless’ website, low-income families that qualify for food stamps, Medicaid, or some state-funded programs can apply to get wireless phone services from Sprint through the Universal Service Fund, a federal taxpayer funded program that for the most part subsidizes phone services in rural areas.

Low-income people that qualify can get a free cell phone, along with 250 minutes of voice service every month.

Sprint has won praise from some public interest groups. Investors aren’t sure about the impact of Assurance Wireless, though. It apparently helped Sprint sign up more prepaid customers in 2010, but Sprint’s average monthly revenue per subscriber, or ARPU took a hit as a result of more lower-spending customers being on the rolls.

for full article: