iPhone May Cost Verizon $5 Billion In Subsidies In First Year

IPhone May Cost Verizon $5 Billion In Subsidies In First Year

Verizon's iPhone coup may come with a heavy price.

The giant wireless carrier could end paying up to $5 billion in subsidies for the phone, according to Business Week. Verizon's rumored announcement Tuesday that they will begin to carry the iPhone, thus far exclusive to rival AT&T, caps off months of frantic speculation from the anticipatory public, though details of the agreement are yet unknown.

Verizon currently holds the throne as the largest U.S. wireless carrier, though AT&T's deal with Apple up to this point has kept iPhone loyalists tied to their network. This announcement may cramp the second-place AT&T further while boosting Verizon's fortune.

One analyst predicted that Verizon would sell 13 million iPhones at a subsidy of $400 dollars apiece, which would amount to $5.2 billion, while a more conservative estimate placed that figure at closer to $3 billion. Offering subsidies on hardware--which is substantially more expensive than the prices on phones offered with plans--is a usual practice for cell phone companies. A new iPhone 4 purchased without plan--or subsidy--costs $599.

Another factor in predicted profits are the data plan options that will accompany the phone. Revenue accounts for much of the money phone companies make after they pay the subsidies on the hardware itself. With smartphones on the rise and voice revenue on the decline, data plans are one of the last potential spaces for profit growth. Verizon is expected to announce an unlimited data plan, a move that could put great stress both financially and technologically on the company and its network. AT&T stopped offering unlimited data last June.

Analysts predict that Verizon's announcement will seriously cut into AT&T's sales of its iPhone, forecasting they will sell about six million iPhones this year, which would be a drop of nine million from last year. Their subsidy on the iPhone will also drop from $400 from $350, as their exclusive deal comes to a close.

The rivalry between these two companies is nothing new. Back in 2009, Verizon ran a series of television ads slamming AT&T for poor network coverage, while mocking their "There's an app for that" ads with "There's a map for that" commercials that displayed contrasting maps of the two networks' coverage. AT&T filed suit, though they eventually dropped their case. AT&T has already claimed Verizon will experience network fatigue, though the company's recent launch of their 4G network could potentially help handle such issues.

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