iPhone subsidies drag down Verizon profits
24th Jan 2012 | 17:11
Higher premiums on Apple phones see carrier report poor Q4
Verizon has reported a Q4 2011 loss of over $2 billion, partly due to the higher subsidies the company is forced to pay to sell the Apple iPhone.
The wireless carrier, which revealed a profit of $2.64 billion for the corresponding quarter last year, began selling the iPhone 4 in February 2011, ending years of AT&T exclusivity.
Verizon is forced to sell each iPhone at a big loss in order to tie users into expensive two-year contracts.
Very cash-flow positive
According to Bloomberg, subsidising handsets has allowed the company to add 1.2 million new subscribers, which is expected to pay-off in monthly fees further down the line.
"The average smartphone customer will spend about $2,000 over the two-year contract, if the subsidy is $400, you're still getting $1,600, and that's very cash-flow positive," said BarCap analyst James Radcliffe.
Verizon sold 4.3 million iPhone's in the period leading up to Christmas, which doubled the figure from the previous quarter.
However, a large part of the $4.5 billion negative swing in profits can be attributed to a pension charge which cost the company $3.4 billion last quarter.