Verizon’s Smartphone Hang-Ups Lead to 4Q Loss

Verizon Communications Inc. (NYSE:VZ) reported a fourth-quarter loss after getting a pension charge and having higher subsidy costs for increasing iPhone sales. The net loss was $2.02 billion. The previous year they profited $2.64 billion. Earnings fell to 52 cents a share, which is on point with the average estimates compiled by Bloomberg. The pretax cost for a pension-plan revaluation was $3.4 billion.

Walt Piecyk, an analyst with BTIG LLC in New York, says that although iPhone sales doubled from the third quarter, overall smartphone sales fell short, pointing to a decline in demand for devices that run on Google Inc.’s Android operating system. “This is a little surprising during a holiday period, especially given all the marketing around 4G phones,” he said.

Verizon and rivals such as AT&T Inc. (NYSE:T) sell the Apple Inc. (NASDAQ:AAPL) iPhone at a loss so customers will sign up for contracts that usually run for two years. The approach of subsidizing smartphones helped Verizon add 1.2 million subscribers on monthly contracts.

“The question is — will this drive greater profitability in the wireless business down the road?” James Ratcliffe, an analyst at Barclays Capital in New York, said. “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. “

Verizon leads AT&T in constructing a faster next-generation wireless network, allowing it to outpace the competition in subscriber gains. Verizon also added 201,000 FiOS Internet customers and 194,000 FiOS TV subscribers. Michael Nelson, an analyst at Mizuho Securities USA Inc., thinks Verizon will gain 200,000 Internet users and 200,000 TV customers.