Verizon’s iPhone bill was close to $3 billion last quarter — but don’t cry for the phone company, because your cell-phone bill was up even more.
Verizon Communications’ wireless unit yesterday missed Wall Street’s fourth-quarter profit estimates in large part because of the hefty cost of subsidizing iPhone sales — Verizon sold a record 6.2 million iPhones in the period, double what it did in the previous quarter.
Verizon pays Apple about $650 per iPhone 5, sells it to the public for roughly $200 and eats the difference as a subsidy — hoping to get customers into pricey data plans that will quickly recoup the $450 subsidy.
It has largely succeeded in that effort. Yesterday it reported that its average bill had risen 6.6 percent over last year, to $146.80.
The steep rate increase — higher than the rise in the average cable bill or US food bill — allowed Verizon to recoup the subsidy in 93 days, compared with 99 days a year ago.
The ability of Verizon to wring more cash from subscribers and pay off the subsidy didn’t stop one executive from bellyaching about the cost of the iPhones.
Verizon Chief Financial Officer Fran Shammo, in a conference call, said “subsidy reduction” was on the way, after the company’s quarter came up short thanks to Apple’s big piece of the pie.
Verizon’s iPhone activations, which accounted for two-thirds of its holiday smartphone sales, cost the carrier about $2.8 billion in subsidies. The subsidy did not rise.
Verizon, along with the rest of the industry, including its top US rival, AT&T, all contend with the high price of playing with Apple, a notoriously tough negotiator with partner companies.
More than half of Verizon’s and AT&T’s customers are now using smartphones; 57 percent of Verizon’s customers owned Internet-connected phones last quarter.
The rising wireless bills mean that companies like Verizon are making back their subsidies faster than ever, with two-year contracts that average $3,523.20 over their lifetimes.
“That’s not all that bad for Verizon,” said analyst Colin Gillis, who covers Apple with BGC Partners.
Verizon had to address the subsidy issue because of the sticker shock.
“They missed earnings estimates, and a big chunk is because of subsidies,” Gillis said. Analysts expected earnings of 50 cents a share, but Verizon posted 45 cents.
The holiday season demonstrated that US demand is still strong for Apple products.
But Apple’s shares have been hammered lately, and some industry watchers think the carriers see a chance to apply pressure for a better deal.
“Competitive threat is always the key,” telecom analyst Jeff Kagan said. “It looks better now than it’s ever looked, now that people think Apple may be cresting. Carriers are sick and tired of being taken advantage of.”
Apple declined to comment yesterday.
Verizon shares rose 0.9 percent yesterday, to $42.94.