How Verizon Is Losing Money on the iPhone

This morning Verizon reported a fourth quarter loss of $2.02 billion, or 71 cents per share, and even though it doubled iPhone sales over the holiday season to 4.2 million, the loss had a lot to do with those very sales. This year's numbers compare to a $2.64 billion, or 93 cents per share, profit during the same quarter last year. And at this time last year Verizon didn't have the iPhone at all. How did the wireless provider lose money off of such a successful phone? 

To attract subscribers, Verizon is subsidizing iPhone 4S contracts. Though this has attracted 1.2 million subscribers, reports  Bloomberg's Scott Mortiz, it's also driving the loss. Each time a new customer signs up for a contract, Verizon pays out a subsidy and has lost an estimated $3 billion to $5 billion. "You basically write customers a $400 check," UBS AG analyst John Hodulik told Bloomberg's Amy Thompson in December. The hope for Verizon, however, is that once the customers are on these contracts they will make up for the subsidies with data, texting and call overage charges. Considering Verizon only allows those grandfathered in access to that sweet unlimited data deal, these new iPhone customers will surely spend more than their allotted data on Pandora or whatever. At least, if we hadn't scored that unlimited data plan while the going was hot, we would.

Read the full story at The Atlantic Wire.