Verizon Posts Loss on Pension Costs as IPhone Boosts Expenses - San Francisco Chronicle

Jan. 24 (Bloomberg) -- Verizon Communications Inc., the second-largest U.S. phone company, reported a fourth-quarter loss after booking a pension charge and having higher subsidy costs for rising iPhone sales.

The net loss was $2.02 billion, compared with a profit of $2.64 billion a year earlier, New York-based Verizon said today in a statement. Earnings, excluding some items, fell to 52 cents a share from 54 cents a year earlier, matching the average of estimates compiled by Bloomberg.

Verizon and rivals such as AT&T Inc. sell the Apple Inc. iPhone to customers at a loss to get them to sign up for contracts that typically run for two years. That strategy helped Verizon add 1.2 million subscribers on monthly contracts, meeting the average estimate from 10 analysts surveyed by Bloomberg. The carrier is banking the initial subsidy cost pays off as the users spend on data and calling throughout the life of the contract.

"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 before the report. Ratcliffe has a "neutral" rating on Verizon shares.

The average monthly revenue per user among wireless contract customers fell to $54.80 from $54.89 in the third quarter. Analysts predicted $54.87 on average. Contract-customer churn, or the monthly defection rate, was 0.94 percent, compared with the 0.96 percent analysts estimated.

Smartphone Payback

Sales rose 7.7 percent to $28.4 billion, matching the average analyst estimate. The net loss per share was 71 cents, compared with a profit 93 cents a year earlier.

On Jan. 4, Verizon Chief Financial Officer Fran Shammo said the company sold more than 4 million iPhones in the fourth quarter, weighing on the wireless division's gross margins by 500 to 600 basis points.

"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," Ratcliffe said.

Verizon, which co-owns its wireless business with Vodafone Group Plc, fell 1.5 percent to $38.40 yesterday. The stock added 12 percent last year, compared with a 2.9 percent gain by AT&T.

Verizon is ahead of Dallas-based AT&T in building out a faster next-generation wireless network, helping it outpace the rival in subscriber gains. The company is also benefiting from rising demand for the iPhone and handsets that run on Google Inc.'s Android operating system.

--Editors: Ville Heiskanen, Cecile Daurat

To contact the reporter on this story: Scott Moritz at smoritz6@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net