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iPhone subsidies drag down Verizon profits

iPhone sales drag down Verizon profits
Subsidising the iPhone is costing Verizon in the short-term

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.

Via: Bloomberg