Verizon gambled on the success of putting iPhones into the hands of subscribers, and so far it's a failing venture. The quarter saw the launch of the iPhone 4S, the second model to be sold by Verizon.
Verizon on Tuesday announced that it sold 4.3 million iPhones, and 7.7 million smartphones total. In a bit of twisted logic, higher sales mean lower profits nowadays. Verizon subsidizes each smartphone by hundreds of dollars, figuring that it will make the money back in service fees over a two-year contract. That didn't happen in the last quarter of 2011.
An iPhone that Verizon buys from Apple for $600 is sold in stores for $200, and the question is whether phone companies ever make that money back.
Sanford Bernstein analyst Craig Moffett argues that the example of AT&T, which has sold iPhones since 2007, indicates that the expected boost to profits never really materializes, because the phone companies have to keep subsidizing each new iPhone release.
"The earnings pop will always be a year away," Moffett wrote Tuesday.
The New York-based company reported that it lost $2.02 billion, or 71 cents per share, in the last three months of 2011. That compares with net income of $2.64 billion, or 93 cents per share, a year ago.