Skip to main content

iPhone Could Cost Verizon $5 billion in Subsidies

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.