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iPhone Could Cost Verizon $5 billion in Subsidies

By - Source: Tom's Guide US | B 25 comments

The price that comes with finally having the coveted iPhone on your network.

Being tied to a cell phone carrier kind of sucks, but carriers say it’s necessary in order to offer customers the latest, greatest phones at affordable prices. The sweet spot for subsidized phone pricing has been hovering at $199 for the last couple of years, but purchasing a phone off-contract or unlocked costs in or around the $500-mark.

Though off-contract or unlocked phones are becoming increasingly popular (especially in the Android market space). Today US carrier Verizon announced the arrival of the iPhone on its network, and it will be affording iPhone owners more choice when it comes to carriers. However, there is no off-contract option and it appears as though subsidizing all those iPhone 4s is going to be a costly operation.

In fact, Bloomberg reports that Verizon may end up between $3 billion and $5 billion out of pocket because of iPhone subsidies alone. The publication cites John Hodulik, an analyst at UBS AG. Hodulik, as saying Verizon may sell 13 million of the devices with an estimated $400 subsidy this year, which would add up to a total of $5.2 billion. Another analyst, Barclay’s James Ratcliffe, estimates that Verizon will sell at least nine million iPhones in 2011, and puts the per-unit subsidy cost at about $350. This would equate to $3.2 billion in subsidies.

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  • 0 Hide
    nevertell , January 11, 2011 4:06 PM
    Does apple really ask as much from Verizon for each phone as it asks for every phone it sells that ISN'T locked to any network ?
  • 3 Hide
    nutriment6464 , January 11, 2011 4:09 PM
    Who cares, it's gonna pay off cause thousands/millions of apple zombies will buy it to be cool. Tssk
  • 1 Hide
    dman3k , January 11, 2011 4:22 PM
    One thing that is great about the iphone is all the companies that makes accessories for it. That's about it. Everything else, android does better.
  • 5 Hide
    robochump , January 11, 2011 4:25 PM
    Who cares? It will eventually be the consumers that pay the tab. Also the article does not point out what Verizon will make in return; more then the subsidies I can guarantee!
  • -1 Hide
    tsnorquist , January 11, 2011 4:28 PM
    I know the market would be small for this, but I really wish a company would put out a phone as such:

    rugged (i.e drop proof, waterproof, shock, etc.)
    back lit monochrome screen
    simple texting
    voice calls
    voicemail
    battery that last 3+ weeks.

    I just don't see the value in a smartphone or their associated rip off plans.
  • 2 Hide
    gtvr , January 11, 2011 4:34 PM
    tsnorquistI just don't see the value in a smartphone or their associated rip off plans.


    If you want to browse or do other functions while out & about, you get an iphone or android. If you want to make calls & text, there are many many more basic phones available. It's not really that complicated.

    Sometimes I want to look stuff up on a browser while I'm out - such as if my train is late, or news, etc. I know what the plans cost, it's worth it to me so it's not a "rip off". I'd be happy to pay less, but it's what it costs & I have decided to pay it.
  • 1 Hide
    milktea , January 11, 2011 4:37 PM
    tsnorquistI know the market would be small for this, but I really wish a company would put out a phone as such:...I just don't see the value in a smartphone or their associated rip off plans.

    A smartphone is more like a handheld computer. That means...
    1) it's not rugged (thin and light)
    2) it's got to have full color gamut
    3) advanced texting/MMS
    4) simple voice calls as well as video calls
    5) access to voicemail like reading e-mails
    6) battery that lasts 3 days at best

    :D 
  • 1 Hide
    tsnorquist , January 11, 2011 4:44 PM
    No worries. I was just tossing out an idea. I have the mentality that the more stuff you put in something the more that can go wrong (mechanically, electrically, and security).

    Looking at it from a few different positions, with a simple phone that gets lost you lose your "address book" and your phone. I couldn't imagine losing a smart phone with favorites bookmarked to banking info, various online accounts, confidential pictures, etc.

    Also, I can only imagine that "sexting" will only get more prevalent down the road which could lead to unnecessary criminal charges with people.

    I can see with Gtvr & Milktea's point of view there are uses for it, but you still won't convince me that that $30.00 data plan is fair =).
  • 0 Hide
    hellwig , January 11, 2011 4:54 PM
    And how much has it cost AT&T for all the millions of iPhone's they have already sold on subsidies? Yes, the first couple iterations were not subsidized, but I think since the iPhone 3GS, AT&T has been subsidizing those phones, to keep them competitive. Fools may have paid $600 (plus 2-year contract) for the first iPhone, but no way millions would pay $600 (plus contract) today for an iPhone 4 with all the great Android phones out there for $200 (plus contract).

    How much has it cost all 4 major U.S. carriers to subsidize every phone they ever subsidized? My first phone was a little Nokia for $20 on contract, I could have gotten a free Samsung, but wanted a color screen. You can still get plenty of free or low-cost phones with any new or renewed plan. Just because it doesn't have an Apple logo on it doesn't mean those phones grow on trees (hmm... that actually seems backwards). This is the price all U.S. carriers have been paying for years.
  • 0 Hide
    joebob2000 , January 11, 2011 5:15 PM
    tsnorquistNo worries. I was just tossing out an idea. I have the mentality that the more stuff you put in something the more that can go wrong (mechanically, electrically, and security).Looking at it from a few different positions, with a simple phone that gets lost you lose your "address book" and your phone. I couldn't imagine losing a smart phone with favorites bookmarked to banking info, various online accounts, confidential pictures, etc.Also, I can only imagine that "sexting" will only get more prevalent down the road which could lead to unnecessary criminal charges with people.I can see with Gtvr & Milktea's point of view there are uses for it, but you still won't convince me that that $30.00 data plan is fair =).


    Get an old-ish blackberry. Seriously, they are incredible little pieces of hardware. Compared to modern smartphones they are total junk but they have epic battery life and are very rugged.

    I used my BB Storm in "talk/text only mode" for over a week (while traveling out of country). I didn't have to charge it. At all. It would have gone longer if I used the desktop manager to strip out all the email/web stuff. Plus, many of them are truly quad-band global, as capable of a phone as you can possibly ask for.
  • 0 Hide
    JamesSneed , January 11, 2011 5:17 PM
    So ATT has this talk / data feature. Verizon doesn't have it but its 3G network coverage is larger and faster(slightly over 2x faster than ATT per wired.com testing). I thought all this was pretty common knowledge, no?
  • 0 Hide
    festerovic , January 11, 2011 5:24 PM
    Since my two year contract costs $1800 roughly (phone and mandatory data plan), I'd say subsidizing the phones is a good move financially for Verizon if they can float it. Big payoffs down the road.
  • 0 Hide
    milktea , January 11, 2011 5:24 PM
    tsnorquistI can see with Gtvr & Milktea's point of view there are uses for it, but you still won't convince me that that $30.00 data plan is fair =).

    At first I was reluctant to get a smartphone just because ATT forces you to get a data plan. But there's really nothing you can do, since all carries in the U.S. have the same policy on the smartphone users. Unless you get an unlock phone, which is more than double the price you pay up front compare to contract phone. But I'm not willing to buy an unlock phone, because technology for smartphones is changing very rapidly. I'm probably going to get a new one in the next 1 or 2 years. Dual core phones are coming out this year. So going on contract makes sense. The only question is that are you willing to pay the extra (for the data) in order to keep up with technology? It would make sense if you're in the IT/tech business. Also, since I'm already paying for the voice plan, mind as well cough up another $15 for the data + $5 for texting. I'll just consider that as donation back to the IT industry. :) 
  • 0 Hide
    TeraMedia , January 11, 2011 5:31 PM
    ... and today the part of Marcus Yam will be played by Jane McEntegart?
  • 1 Hide
    slipdisc , January 11, 2011 6:12 PM
    nevertellDoes apple really ask as much from Verizon for each phone as it asks for every phone it sells that ISN'T locked to any network ?

    Yes, Apple nor any other manufacturer is giving away shit. You want it, your going to pay for it. Which is precisely the reason carriers require a 2 yr commitment in order to sell you the phone for the subsidized price.
  • 1 Hide
    eddieroolz , January 11, 2011 6:39 PM
    It might cost a lot, but it will also bring Verizon huge paybacks in form of zombie Apple users following the word of their master, Jobs.
  • 1 Hide
    Jarmo , January 11, 2011 7:11 PM
    Also! 12 million iPhones could cost Apple 2 or 3 billion in manufacturing costs!!!
    Everyone is going bankrupt! Oh dear, oh dear!
  • 0 Hide
    skadeet , January 11, 2011 7:13 PM
    tsnorquistI know the market would be small for this, but I really wish a company would put out a phone as such:rugged (i.e drop proof, waterproof, shock, etc.)back lit monochrome screensimple textingvoice callsvoicemailbattery that last 3+ weeks.I just don't see the value in a smartphone or their associated rip off plans.


    here you go http://www.verizonwireless.com/b2c/store/controller?item=phoneFirst&action=viewPhoneDetail&selectedPhoneId=5540&deviceCategoryId=2
  • 0 Hide
    cadder , January 11, 2011 8:48 PM
    It will cost them a lot right now, but it is a very good investment. Even if a person pays $200 for the phone, uses it 1 week and skips, they will have to pay a big early termination fee that will basically pay for the remainder of the cost of the phone.

    Anybody that stays with Verizon pays a hefty monthly charge that would pay the balance of the phone in a year or so worst case. (This is assuming a person is already a Verizon customer and adds another line to their existing plan, plus data plan. I don't know the exact costs w/ Verizon but this is probably at least another $40 a month.)
  • 0 Hide
    tayb , January 11, 2011 10:28 PM
    The MSRP is $600 for the base model but that is after Apple's heft markup. I seriously doubt Apple is selling 13 million iPhones to Verizon at the same price they would sell 1 iPhone to me if I walked into an Apple store.

    Anyways, Verizon is offering the iPhone off-contract so get your story correct. It couldn't be in more plain English on the Verizon website.
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