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Verizon takes a loss, but grows customer base, solidifying its #1 spot

Maybe Sprint Nextel Corp.'s (Sbold iPhone gamble wasn't such a bad idea after all.  At a time when many predicted Apple, Inc. (AAPL) to be fading in the smartphone race after getting outsold by Samsung Electronics Comp., Ltd.'s (KS:005930) slick Android handsets, Apple surged back with the launch of the iPhone 4S and its iconic voice-controlled assistant, Siri.  Analyst numbers place Apple in a near dead heat with Android in December U.S. smartphone sales.

And the situation is looking even better for Apple based on the just-announced earnings of Verizon Wireless, the joint venture between Verizon Communications Inc. (VZ) and Vodafone Group Plc. (LON:VOD).  

For Verizon Wireless it was a lukewarm quarter as a pension charge and another one-time expense brought a net loss of $2.02B USD ($0.71 USD/share), versus the $1.48B USD profit ($0.52 USD/share) it would have recorded without these charges.  The company did solidify its American lead, adding 1.2 million new contract subscribers (and 1.46m total new subscribers) bringing its total (contract and non-contract) customers to 108.7m and its contract customer base to 87.4m.

Smartphone sales rose from 39 percent in Q3 2011 to 44 percent in Q4 2011.  And the iPhone was king at Verizon.  Of the 7.7m smartphones sold by the carrier in Q4 2011, 4.3m (~55%) were iPhones.  Again, take that figure in -- the iPhone outsold all Android phones combined on America's largest carrier.

iPhone Lines Verizon
The iPhone remains a top draw at Verizon. [Image Source: Reuters]

Of course Verizon pays more for iPhones that the initial carrier AT&T, Inc. (T) did.  And Sprint is reportedly paying even more -- so maybe it isn't such a good deal, after all.

It's certainly a good deal for Apple, though, who reportedly pulled in almost $600 USD per Verizon iPhone sold, on models that retail for $200 USD with contract.  Verizon is doing its best to recoup this capital expenditure, with a slew of overage fees.  Reportedly the average iPhone bill on Verizon was around $100 USD with all the taxes and fees added [source].  Verizon likely pockets $80 of this, meaning that it will haul in $1,920 over the duration of a contract.  But it has to deal with the significant costs of network upgrades, power use, land use, employee pay, and more.  

Some analysts are convinced that a net profit on an iPhone may be a fatalistic quixotic fantasy.  Sanford Bernstein analyst Craig Moffett says Verizon is following in the line of AT&T in deluding itself that it will someday see a profit, but consistently failing to do so.  He writes, "The earnings pop will always be a year away."

Still, if America's third and fourth largest carriers -- Sprint and Deutsche Telekom AG's (ETR:DTE) T-Mobile USA -- collapse under their respective debt, Verizon and AT&T could soon be able to significantly unilaterally increase contract rates, solving both companies' iPhone profitability dilemma.

T-Mobile iPhone
The collapse of T-Mobile and Sprint -- a possible scenario -- may hold the key to AT&T and Verizon finally profiting off of their expensive iPhone commitments. [Source: T-Mobile]

Apple is also extremely well positioned under such a scenario, given that it's the top selling model at Verizon and likely near the top at AT&T, as well.  The first major test for Apple, though, will be how it responds to the inevitable need to reinvent iOS.  On the one hand it can't sit still as Google Inc. (GOOG) unveils its slick latest Android build, Android 4.0 "Ice Cream Sandwich".  On the other hand, Apple must tread the fine line of avoiding alienating its largely non-technophile customer base with too gaudy an interface.

Android 4.0 Ice Cream Sandwich
Android 4.0 "Ice Cream Sandwich" [Image Source: Google]

For now, though, Apple and its fans can simply savor the thrill of being back near the top of the U.S. smartphone market -- even if challenges await.

Source: Verizon Wireless



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*Yawn*
By wpodonnell on 1/24/2012 4:29:23 PM , Rating: 4
"Again, take that figure in -- the iPhone outsold all Android phones combined on America's largest carrier."

Is this really that much of a surprise, given the pent-up iPhone demand at Big Red? Sustaining that next year will be noteworthy. This year? Not so much.




RE: *Yawn*
By seamonkey79 on 1/24/2012 5:52:42 PM , Rating: 2
Combine that with the fact that there are thousands and more that were early first time Android buyers with the Incredible and the couple that came out after that... we're just waiting for our upgrade to roll through before buying getting a new one. I know of nine people in my relatively small circle that have upgrades coming up in the next few weeks (mine's next week) that are heading out to buy a new phone as soon as the day rolls around.

I think we'll see the tables back to where they were as the year rolls through. Pent up angst at the lack of a new iPhone for 'so long' combined with staggered upgrades due to lack of phone availability early/mid 2009 will catch up.


RE: *Yawn*
By tayb on 1/24/2012 6:07:23 PM , Rating: 2
Your logic precludes a scenario where there are people waiting to upgrade their current Blackberries or Android devices to iPhones on Verizon. I know quite a few people, myself included, who bought Android devices (on Verizon) between July 2010 and December 2010 simply because it was the only reasonable smart phone available. Where these people land when their contracts are up throughout this year is anyone's guess but if I had to put money on it I would say these current numbers will hold true for the next 6 months, taper off in anticipation of the next iPhone, and then leap back to the top.

Time will tell.


RE: *Yawn*
By nafhan on 1/25/2012 9:22:42 AM , Rating: 2
Actually, I think the "iPhone outsold..." numbers were true for the fourth quarter only - the quarter in which a new iPhone was released. At least over the next couple years, I would be surprised if the iPhone was NOT the best selling phone in quarters where a new model is released (i.e. 4th quarter every year). Unlike most other devices, there aren't discounts on a given model until it's replaced by a newer one, and there aren't any alternative manufacturers. So, you're going to have a pretty significant % of your upgrades happening as soon as a new model is released - it's certainly when I would upgrade if I were on the iPhone bus.


RE: *Yawn*
By testerguy on 1/26/2012 7:20:19 AM , Rating: 2
Try telling this to people who compared Samsung smartphone sales to Apple smartphones sales last quarter (before the iPhone 4S was released), and reached ridiculous conclusions on it.

iPhones overall in the year outsold any other phone, so whether you look at just this quarter or overall, it tells a positive story about Apple.


RE: *Yawn*
By VahnTitrio on 1/26/2012 10:21:08 AM , Rating: 2
And that Big Red was very slow when it came to getting the Galaxy Nexus to market; and even when it did arrive the $300 price point was not all that attractive to those accustomed to paying $200 for the latest and greatest Android.


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