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Does Verizon Owe Apple $14 Billion?
Does Verizon Owe Apple $14 Billion?
By Jennifer LeClaire / NewsFactor Network Like this on Facebook Tweet this Link thison Linkedin Link this on Google Plus
PUBLISHED:
JULY
13
2013

Verizon didn't sell nearly enough iPhones in its Apple deal -- and it could be costly. In fact, it could cost the wireless carrier $14 billion, according to Moffett Research.

Carriers that work with Apple agree to buy a certain number of iPhones in order to land the iconic device on their network. It's unclear how many AT&T agreed to buy, but news reports suggest Sprint agreed to spend $15.5 billion on iPhones over a four-year period.

Although Moffett expects Sprint to meet its iPhone quota, the research firm is not as bullish on Verizon based on what is in the carrier's SEC reports. Vodafone, Verizon's parent company, reported that the carrier had $45 billion in purchase commitments during a three-year time frame at the end of 2010.

Negotiations Possible

T-Mobile and Sprint are putting sales pressure on Verizon on the iPhone front. Verizon had the phone before them, but the smaller carriers are offering attractive pricing and plans that have caused many consumers to defect or upgrade from feature phones to smartphones with Verizon competitors.

"It is likely that Apple would be reluctant to simply ignore these commitments, since many other carriers around the world are probably in a similar situation, and a simple amnesty would set an unwanted precedent. It is therefore unrealistic to think that Apple won't extract some consideration for renegotiating these shortfalls," Moffett said.

According to Moffett, few if any other handset suppliers require purchase commitments of this kind. And again, the research firm said, it is noteworthy that the total commitment was almost zero until Verizon contracted with Apple for the iPhone for the first time.

"We certainly don't expect that Verizon will have to write a check to Apple for $12 billion or so to make good on its seemingly inevitable shortfall," Moffett said. "However, it seems likely that Apple will extract at least some consideration for a contract shortfall of this apparent magnitude."

Are the Numbers Off?

Stuart Jeffrey, an analyst at Nomura Securities, published a note on the Apple iPhone suggesting that sales are slowing and Verizon could take a hit. In fact, Jeffrey predicted Verizon could owe Apple as much as $23.5 billion in 2013. But most observers don't expect Verizon to sell enough iPhones to cover the costs.

In Jeffrey's estimate, Verizon sold about 7.2 million iPhones in the first six months of 2013. He predicted the company will sell another 10.8 million in the last six months of 2013. If he's right, that would put Verizon 19 million units short, or $12 billion in the hole on the year.

Some industry watchers are arguing that Jeffrey's numbers are off. Verizon could not immediately be reached for comment.

Read more on: Apple, Verizon, iPhone
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