Verizon paid dearly to put iPhones in the hands of subscribers in the latest quarter, holding back its profits in the hope that its customers will rack up higher monthly bills and stay loyal.
The quarter saw the launch of the iPhone 4S, the second model to be sold by Verizon, and it was clear that many had been waiting for it. Verizon sold 4.3 million of them, and 7.7 million smartphones total.
But by the upside-down logic of the wireless industry, higher sales mean lower profits for the quarter. Verizon Wireless subsidizes each smartphone by hundreds of dollars, figuring that it will make the money back in service fees over a two-year contract. That means the wireless division, though still highly profitable, posted a rare drop in operating income for the fourth quarter.
In the results of Verizon Communications Inc., the phone company that own 55 percent of Verizon Wireless, this was masked by large charge for adjusting the value of its pension plans.
The New York-based company on Tuesday said 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.
Verizon had warned that the big pension charge was coming.
Excluding the pension effect and another one-time item, Verizon earned 52 cents per share. That was a penny shy of the average forecast of analysts polled by FactSet. Comparable earnings last year were 54 cents per share.
Revenue rose 7.7 percent to $28.4 billion from $26.4 billion a year ago. The latest figure was in line with analysts’ expectations.
Verizon shares fell 78 cents, or 2 percent, to $37.62 in premarket trading.