The iPhone May Prove a Costly Prize for Verizon
According to a Bloomberg report, Verizon may spend as much as $3 billion to $5 billion the first year it has the iPhone, in subsidies. Carriers pay subsidies to device manufacturers to reduce the cost of devices to consumers, which is why they ask consumers to sign up for service contracts. Consumers who choose to buy phones without a contract see the "true cost" of the device.
Meanwhile, John Hodulik, an analyst at UBS AG. Hodulik said Verizon may sell as much as 13 million iPhones. He estimates a $400 subsidy, which would come to a total of $5.2 billion.
Hodiluk believes that Verizon will add 2.1 million new subscribers this year, surpassing its largest rival, AT&T for the first time since 2008 (which, coincidentally, was the year the iPhone 3G went on sale). AT&T is estimated to only add 650,000 subscribers in 2011.
It takes AT&T about six months to make back the cost of the iPhone from customers’ data plans, iSuppli’s senior analyst for wireless communications, Tina Teng told Bloomberg. Given that Verizon will most likely pay the same price as AT&T for the smartphone, Verizon's profits for the first two quarters should be most affected.
Holulik believes the first-year loss will reduce earnings-per-share from Verizon from $2.26 last year to $2.20 in 2011.