Verizon Wireless swung to a $2 billion loss, despite higher data revenue and doubled iPhone sales. Increased interest in the Apple smartphone was a double-edged sword. Higher iPhone demand resulted in steeper subsidies paid by the second-largest domestic carrier during the fourth quarter.
In a corporate version of A Tale of Two Cities, Verizon announced higher iPhone sales, higher wireless revenue, but lower profit. Spurred by iPhone sales during the quarter that doubled to more than 4 million handsets over the previous three-month period, wireless revenue rose 13 percent to $18.3 billion. Sales of data plans required by smartphones jumped 19 percent.
However, wireless profits fell 5.3 percent from 42.2 percent of sales. The reason: carriers adopting the iPhone and other smartphones are playing a high-stakes game of Chicken. The popular devices attract more subscribers and lucrative data plans. The question is whether those advantages outweigh the cost of paying subsidies to handset makers, such as Apple.
“The average smartphone customer will spend about $2,000 over a two-year contract, if the subsidy is $400, you’re still getting $1,600, and that’s very cash-flow positive,” Barclays Capital analyst James Ratcliffe tells Bloomberg.
Verizon said it added 1.2 million subscribers in the fourth quarter as a result of its smartphones. Although Verizon financial chief Fran Shammo early this month said the carrier sold more than 4 million iPhones during the fourth quarter, overall smartphone sales reached 7.7 million handsets, 1.5 million than Shammo forecasted. The reason: slowing demand for Android-based smartphones — despite all of the holiday hoopla.