Verizon and the iPhone: Strange Bedfellows

In the following video, Motley Fool senior technology analyst Eric Bleeker takes a look at the strange relationship between telecom carriers such as Verizon (NYSE: VZ  ) and Apple's (NASDAQ: AAPL  ) iPhone.

While mobile companies hate paying enormous subsidies on the phones, the method works for attracting customers. In the past 12 months, 53% of Verizon contract subscribers picked the iPhone vs. 44% the year before. Yet, in spite of the iPhone's influence, mobile companies are looking for a way to decrease their dependence on Apple. The problem is that Verizon and its peers must pay a subsidy of approximately $450 per iPhone, higher than many competing devices. If competing platforms could cut into Apple's dominance, that'd present big savings for such companies as Verizon and rival AT&T.

Yet as Eric notes, in a recent tech conference Verizon CFO Fran Shammo highlighted why subsidies might not be going away. At the conference, a Deutsche Bank analyst asked why Verizon wouldn't simply promote lower-cost phones instead of the iPhone. As Shammo explained, the cost of promoting phones that consumers don't want has high costs in the long run. Once consumers aren't happy, they return those phones at huge costs to Verizon. 

In the end, the most cost-effective move for mobile companies is to promote the phones consumers want. With the iPhone continuing to gain share in America, that's a huge reason to believe that subsides that benefit Apple will be alive and well for years to come. 

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  • Report this Comment On March 07, 2013, at 3:15 AM, Drew9944 wrote:

    Finally an article "tells it like it is". Its not just that the iPHONES are the main brand most medium and higher-socio-economic American consumers want, so there are "less returns", but also as other articles have pointed out the iPHONE is at least 3X MORE RELIABLE than other brands of smartphones sold. Think about how much it COSTS Verizon or AT&T or SPRINT to deal with irate customers, and take back broken or partly working Android and Nokia phones? I had an Android 4G phone, it broke 4X in 3 years, and it cost my carrier a ton -- and lost me a ton of time. I am switching to IPHONE next month.

  • Report this Comment On March 07, 2013, at 7:52 AM, Tutti61 wrote:

    I would love to have the apple iphone5 from verizon, but they want me to give up my plan and get the Share Everythng plan. I refuse to do that, I have had this plan since Alltel started out, then purchased by SunCom, then by Verizon. I have 1400 minutes, free nights and weekends, unlimited data and texting. If I change plans, I will never be able to get this one back. So unfair of Verizon to punish their loyal customers.

  • Report this Comment On March 07, 2013, at 10:50 AM, thetar wrote:

    The Apple iPhone was originally sold by Apple without a subsidy. The carriers forced Apple into the subsidy model. Now they are crying about it, because Apple still controls their own market and is still making a profit.

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