iPhone subsidies may cost Verizon $5 billion in 2011

Mon, Jan 10, 2011


Bloomberg reports that with Verizon poised to announce the availability of the iPhone on their network, the nation’s largest carrier may end up spending anywhere between 3 and $5 billion in subsidies, temporarily eating into their profits int he process.

“You basically write customers a $400 check,” said New York-based Hodulik, who rates parent Verizon Communications Inc.’s shares “neutral” and doesn’t own them. “We expect margins to be down pretty meaningfully in the first quarter and second quarter.”

James Ratcliffe, an analyst at Barclays Plc in New York, estimates Basking Ridge, New Jersey-based Verizon will sell at least 9 million iPhones this year with a subsidy of about $350. That would add up to $3.2 billion this year.

While we obviously aren’t privy to the exact cost of iPhone subsidies, the $16GB iPhone tends to go for about $600 minus the $199 asking price, resulting in a subsidy of $400 – a figure much higher than what other handset manufacturers receive from carriers. But with the iPhone’s proven track record of attracting new customers, it only makes sense for carriers to plop down a few extra dollars in order gain access to Apple’s iconic smartphone.

Meanwhile, Bloomberg notes that AT&T, on track to sell 6 million iPhones in 2011, will see the subsidy it pays to Apple go down from $400 to $350 per device in light of the end of its exclusivity contract. “As a result”, the report continues, “AT&T’s total subsidy for the Apple device will drop to about $2.1 billion this year, from $6 billion, he estimates.”


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