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.
Eric Bleeker, CFA has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.