This morning Verizon reported a fourth quarter loss of $2.02 billion, or 71 cents per share and even though it doubled iPhone sales over the holiday season to 4.2 million, the loss had a lot to do with those very sales. This year's numbers compare to a $2.64 billion, or 93 cents per share, profit during the same quarter last year. And at this time last year Verizon didn't have the iPhone at all. How did the wireless provider lose money off of such a successful phone?
To attract subscribers, Verizon is subsidizing iPhone 4S contracts. Though this has attracted 1.2 million subscribers, reports Bloomberg's Scott Mortiz, it's also driving the loss. Each time a new customer signs up for a contract, Verizon pays out a subsidy and has lost an estimated $3 to $5 billion. "You basically write customers a $400 check," UBS AG analyst John Hodulik told Bloomberg's Amy Thompson in December. The hope for Verizon, however, is that once the customers are on these contracts they will make up for the subsidies with data, texting and call overage charges. Considering Verizon only allows those grandfathered in access to that sweet unlimited data deal, these new iPhone customers will surely spend more than their allotted data on Pandora or whatever. At least, if we hadn't scored that unlimited data plan while the going was hot, we would.
Beyond subsidies, Verizon has another issue: iPhones are more popular than their 4G LTE offerings. The 4G LTE network is more cost efficient for Verizon that its 3G network. Verizon CEO Fran Shammo explains at a Citi investment conference a few weeks ago:
So I think the products set around LTE is also one that will generate more revenue. But it also will help with the cost efficiency within Wireless, because every time we add a customer to LTE it is a much more efficient and cost effective network than the 3G network.
Of course, the iPhone doesn't come in 4G. Yet. The Apple rumor mill had talked it up for the iPhone 4S, but that didn't happen. However, the rumor lives on. Though Verizon pushed its 4G phones, it sold almost twice as many iPhones in the 4th quarter, reports ZDNet, but not enough to make up for the subsidies it had to pay out to new iPhone owners.
The loss didn't have everything to do with the iPhone, however. Rising pension-related charges -- a new pre-tax reevaluation plan at $3.4 billion to be exact -- also hurt the company's earnings. As the report came out early this morning, trading on Verizon was down 1.17 percent pre-market.