Verizon activated 4.3 million iPhones in the fourth quarter, at least a million more than its previous record, but investors were unenthusiastic because costs associated with offering the iPhone weighed heavily on Verizon’s earnings.
The addition brings Verizon’s total iPhone activations to 10.8 million, just shy of the 11 million that had been predicted. The carrier began offering the Apple smartphone last February. For the preceding three and a half years, AT&T had offered the device exclusively in the U.S. Verizon also activated 15 million Android devices in 2011. Smartphones now account for 44% of Verizon’s postpaid customer base, up from 39% at the end of 2010.
AT&T hasn’t released its 2011 figures yet. The carrier is planning to report its fourth quarter earnings on Thursday. AT&T activated 2.7 million iPhones in its third quarter compared to 2 million for Verizon.
Verizon’s embrace of the iPhone enabled the company to increase its postpaid wireless subscriber base by 1.2 million in the quarter. Verizon pays a subsidy on iPhones, but analysts believe the carrier makes that back by locking consumers into a two-year contract. James Ratcliffe, an analyst at Barclays Capital in New York, told Bloomberg that, “The average smartphone customer will spend about $2,000 over the two-year contract, if the subsidy is $400, you’re still getting $1,600, and that’s very cash-flow positive.” Nevertheless, at the opening bell Tuesday morning, Verizon’s stock price was down about 1%.
In a call with analysts on Tuesday, Fran Shammo, executive vice president and CFO of Verizon, said he didn’t think the strong smartphone sales — partially driven by Apple’s introduction of the iPhone 4S in October — would continue into the first quarter. “Obviously, in the fourth quarter there’s always a much higher volume,” he said. Shammo emphasized that sales of higher-margin Android devices outsold iPhones and that the company is expanding its LTE network. Verizon now offers 18 LTE devices on its network. The company spent $9 billion upgrading its network in 2011 to expand LTE and to accommodate 3G iPhone devices. By 2013, Verizon expects to have an LTE footprint that matches its 3G footprint today.
Despite qualms about the cost of the iPhone, Verizon’s earnings per share rose to $2.15 in 2011 vs. $2.08 in 2010, excluding one-time charges such as a $3.4 billion pension plan reevaluation that prompted a $2.02 billion net loss in the fourth quarter.