Apple iPhone A Bittersweet Taste For Verizon

4re Nut · Jan 4, 2012

http://www.forbes.com/sites/greatspeculations/2012/01/04/apple-iphone-a-bittersweet-taste-for-verizon/

The latest disclosure from Verizon this afternoon shows that iPhone is bittersweet. Verizon reportedly sold close to 11 million iPhones in 2011 including 4.2 million in the last quarter.

Verizon admits that its wireless margins have taken a 500-600 basis point hit because of the huge iPhone sales.

The sweet side of Apples iPhone is well understood. The exclusivity that AT&T initially enjoyed with iPhone helped it to increase its market share and helped it compete more effectively against Verizon. Before receiving iPhone last year, Sprint openly blamed its lack of iPhone for its troubles.

The iPhone is the biggest draw for wireless telecom companies. For telecom companies, however, there is also a bitter side to the iPhone, which is not widely understood.

When a customer buys an iPhone, the carrier subsidizes the cost. It has been reported that Apple charges about $500 for its latest model, but carriers sell the phone for $199. The subsidies that other carriers provide for other phones are considerably lower than those for iPhone.

The more iPhones that a carrier sells the bigger is the hit to the bottom line. Herein lies the incentive for the carriers to promote Google Android, Microsoft Windows, and Research In Motion phones. Problem is, the iPhone seems too darn popular.
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The sentence I put in bold reminds me of the old SNL skit about a change-making business where they lose a nickel on every transaction but make it up with volume.

Mr. Francesco · Jan 5, 2012

Interesting. I knew that they were losing money, but I didn't realize it was that much per iPhone.

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