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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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RE: Wait for it...
By mevans336 on 1/24/2012 5:56:43 PM , Rating: 2
Should be just a matter of time until an LTE iPhone will be among us. I'm sure they're working on the battery drain conundrum.

The iPhone won't solve the problem of simultaneous voice and data on an EVDO or LTE network, you need Voice-over-LTE (VoLTE) for that. On all 4G LTE phones, voice calls still go over the 3G EVDO or 1xRTT CDMA network, not the LTE network.

FWIW, Verizon just delayed VoLTE deployment until 2013:

As far as an LTE iPhone, we'll probably see one in the 4th Quarter of this year when 28nm SoC LTE chips are available:

RE: Wait for it...
By sprockkets on 1/24/2012 7:05:58 PM , Rating: 2
You can always do voice over the usual CDMA and data over LTE at the same time. It's already done this way with Sprint.

RE: Wait for it...
By tayb on 1/24/2012 7:12:25 PM , Rating: 2
Yeah but the battery life is horrendous. I have no desire to own a 4G phone right now because I actually value battery life on my phone and I have yet to see a 4G model get positive reviews for battery life.

RE: Wait for it...
By sprockkets on 1/24/2012 7:31:35 PM , Rating: 2
Just flip the 4G on when you need it - problem solved. That and those tests are browsing 100% of the time.

RE: Wait for it...
By Chaser on 1/25/2012 8:37:03 AM , Rating: 2
I have to chime in here because I agree with you completely. well until now. I have the new AT&T GII Skyrocket in an LTE city, Washington DC. LTE stays on all day, I use the phone moderately, and it easily goes 16 hours with battery life to spare.

Compared to other 4G phones I have had the Skyrocket does a remarkably well with battery life. And I might add I'm getting 30Mbps downloads and 10Mbps uploads here too. :)

RE: Wait for it...
By sprockkets on 1/25/2012 1:38:43 PM , Rating: 2
Once that phone gets ICS it's the phone to get IMHO, especially the white one :-) I hate Att though.

RE: Wait for it...
By sprockkets on 1/24/2012 9:13:18 PM , Rating: 3
Why the hell would someone rate down a factual post on how the EVO works???

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