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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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T-mobile in debt going to collapse???
By AEvangel on 1/25/2012 11:05:00 AM , Rating: 2
Where is all this imaginary Debt that T-mobile USA has??

Also where is this they are set to collapse coming from??

Last I checked they are quite profitable and one of the few area of Deutsche Telekom AG, that is doing well.

I think you need to keep the doomsaying to Sprint, the recent merger of T-mobile and At&t had more to deal with Deutsche Telekom AG wanting to turn a quick profit and At&t wanting to secure up the networks as well as more customers. it had nothing to do with T-mobile not being successful, if that was the case they would have not made the sweet offer they had made.

RE: T-mobile in debt going to collapse???
By mellomonk on 1/25/2012 1:21:59 PM , Rating: 2
I would have to find the link, but DT has as much as said, that it will 'un-burden' itself of T-Mobile USA one way or another over the next three years. It was really hoping to merge it with Att, but alas....

Supposedly they are shopping for a buyer, merger partner or some combination. The analysis I read speculated that they will probably be parted out, with spectrum & resources going in chunks to other carriers to avoid much Governmental scrutiny. To bad, great customer service, loyal customers, but it is a brutal business.

RE: T-mobile in debt going to collapse???
By mellomonk on 1/25/2012 1:28:05 PM , Rating: 2
Here is a T -Mob article from Dec. in WSJ;

By AEvangel on 1/25/2012 3:11:41 PM , Rating: 2
Zactly...nothing in that article mentions it debt burdened...they are actually quite profitable.

It's not all doom and gloom for T-Mobile: It's still profitable, and AT&T will be sending it $1 billion worth of wireless spectrum allocations by the year's end. A roaming agreement with AT&T will also help expand T-Mobile's coverage to 50 million more Americans.

That's a nice parting gift, but it's not even close to enough for T-Mobile to build out a 4G network. And the real prize, the $3 billion break-up fee, will go towards paying down parent company Deutsche Telekom's debt, not to T-Mobile USA, Deutsche Telekom announced on Tuesday.

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