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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: In Q3, Q4, or both?
By ltcommanderdata on 1/24/2012 7:04:00 PM , Rating: 4
I'm not a tech visionary, so I don't know what the correct definition of innovative is. If Apple increased the screen size as the vocal critics seem to push for, would that really be innovative?

I'd argue that moving from cheap TN panels to IPS for wide viewing angles and color accuracy and being able to push past 300 dpi was a major change from the original iPhone. I don't think anyone would confuse the display between the original iPhone and iPhone 4/4S.

What was probably the major innovation post-iPhone launch was the App Store. Previously, the carriers controlled development access to mobile phones so one middle-man was eliminated. Ability to self-publish, flexible pricing, and a well defined distribution channel were all major changes from how things were before. Apple taking a stand against carrier bloatware and Apple offering a consistent stream of OS updates are also noteworthy differences to how most smartphones operate.


RE: In Q3, Q4, or both?
By TakinYourPoints on 1/24/12, Rating: -1
RE: In Q3, Q4, or both?
By idiot77 on 1/25/2012 10:22:31 AM , Rating: 1
And what did the piles of PDA's look like before the iPhone? I have an HP Windows Mobile 5 that looks awfully like an iPhone did. The difference is I bought sometime in 2003/4. So.... another pointless "article" convincing people like you that Apple innovated something.


RE: In Q3, Q4, or both?
By TakinYourPoints on 1/25/2012 7:19:29 PM , Rating: 2
You'd think that someone else would have done fully touchscreen smartphones before Apple, rather than waiting for them to do it and then copying it instead.

Hell, you should have started a company and done it yourself, it's so simple! Maybe Google would have copied your execution instead and you'd make a fortune from the licensing.


RE: In Q3, Q4, or both?
By TakinYourPoints on 1/25/2012 7:28:01 PM , Rating: 2
Also, Windows Mobile 5 was trash.

Stop looking at things in such a superficial manner, execution matters.

Comparing iOS or Android or WP7 or any other mobile OS to it is ridiculous, as is bringing it into the conversation.


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