At What Price iPhone? For Verizon, $5 Billion, Apparently

3 Comments

Verizon may have been waiting for years now to get its hands on the Apple (NSDQ: AAPL) iPhone, but that extended period hasn’t depreciated the value of at least one item: the pricetag for subsidising the device, which analysts say may end up costing the carrier between $3 billion and $5 billion.

John Hodulik, an analyst from UBS, estimates that Verizon could sell up to 13 million iPhones this year, and he believes that the carrier will attach a $400 subsidy to each device.

Meanwhile, James Ratcliffe, an analyst with Barclays, estimates that Verizon will sell 9 million devices with an average subsidy of $350. Both figures were first reported by Bloomberg.

Operators like Verizon are relatively happy to subsidise the cost of the devices because they potentially have more to gain from selling those users the services that run on the devices. And the iPhone has shown to be one of the most data-friendly devices in the market. It takes only six months (so one-quarter of the way through the contract) to make back the cost of the subsidies, according to iSuppli.

Verizon’s gain could be AT&T’s gain, too: It’s ironic that by losing exclusivity on the iPhone, AT&T (NYSE: T) may actually end up making a better profit per subscriber than it did when it had sole trading status.

AT&T has been selling the iPhone 4 for as little as $199 with two-year contracts, and now has reduced the price for the 3GS model to $49.

This year, it is projected to sell six million devices, compared to 15 million in 2010. But because AT&T will lose exclusivity for the devices, it will be able to negotiate lower unit sales from Apple: it will come down to $350 from $400, says Barclays. That works out to subsidy costs of $2.1 bilion compared to $6 billion last year.

Unit costs for both operators will continue to come down in the future, as more updated phones continue to come to market.

3 Comments

littleroot

Not sure these figures are right, Verizon and ATT figure $350-400 for a subsidy. I’m sure that is what the carriers are telling people, that the phone is really $600, and we charge you $200 and the balance of $400 is on subsidy. But I do not believe it: The carriers are probably paying closer to $250 for the phone, and the other $350 is just pure profit.

MKremin

This article really downplays the matter that the anyone purchasing the iPhone on Verizon is signing a 2 year commitment, that even without any additional outlays for apps or special services, will enable Verizon to recoup the subsidy very quickly. Do the math and it is unquestionably a great short term investment for Verizon, low risk and high returns.

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