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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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By Chaser on 1/25/2012 10:37:41 AM , Rating: 2
Apple surged back with the launch of the iPhone 4S and its iconic voice-controlled assistant, Siri.
4S? The 3G iPhone 4 that was the non iPhone 5 let down of 2011? Versus say an ultrafast Verizon or even AT&T LTE smart phone?

I guess theres no shortage of rich teenage girls wanting an overkill text messaging device, or better yet: There's a Sheeple born every minute.

RE: suckers
By zlandar on 1/25/2012 11:04:22 AM , Rating: 2
You just don't get it do you?

If LTE means crap battery life or a big bulky phone then no I don't want it on my smartphone.

It is a PHONE. A phone is useless to me if I have to recharge it before the end of the day.

If Android is an OS that appeals only to geeks then it's going to get massacred in the marketplace because guess what? Most of the people out there don't give a rat's a$$ about LTE or all the other gee whiz features.

RE: suckers
By Chaser on 1/25/2012 11:49:40 AM , Rating: 2
You might want to actually look at other phones battery performance with LTE so that your "IF" might have an ounce of credibility.

I understand under your intoxicating suckling of Apple milk you have a limited knowledge base of competitor phones with "gee wiz" features like "LTE". Which happens to be on commercials and billboards nationwide? and is offered in over 20 markets with Verizon and 15+ with AT&T. Golly gee.

Try getting it yourself genius.

RE: suckers
By zlandar on 1/25/2012 1:43:46 PM , Rating: 2
"You might want to actually look at other phones battery performance with LTE so that your "IF" might have an ounce of credibility."

Galaxy Nexus:

Barely half the browsing time compared to a iPhone 4 (even worse compared to the 4S) is pretty crappy in my book. Yeah you can argue the display is bigger but the regular consumer doesn't care. All he/she knows is the phone does not last as long.

RE: suckers
By Jeffk464 on 1/25/2012 1:46:01 PM , Rating: 2
LTE does pull the battery down pretty fast so I loaded cyanogen 9 on my nexus and can toggle the LTE radio on or off. If I'm going to be out and about and want my charge to last the day I turn off LTE, GPS, and bluetooth. Basically if you want a smartphone to go all day on a single charge you pretty much just have to use it as a phone and not do all the data stuff.

“We do believe we have a moral responsibility to keep porn off the iPhone.” -- Steve Jobs

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