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Analyst: Verizon on the hook to Apple for iPhone purchase commitments

Posted: , posted by Alan F.

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Analyst: Verizon on the hook to Apple for iPhone purchase commitments
According to analyst Craig Moffett of Moffett Research LLC, Verizon Wireless is on the hook with phone manufacturers for $45 billion in purchase commitments. The bulk of that amount is related to agreements made by the nation's largest mobile carrier to purchase the Apple iPhone, which Verizon started carrying in 2010 with the Apple iPhone 4.

In a research note to clients, Moffett said that Verizon has yet to sell iPhones at the pace required in its contract. To meet its commitment, Verizon needs to sell 23.5 million units of the Apple iPhone this year, which would be double the amount sold last year. Moffett believes Big Red will end up having to cover for as much as $14 billion. The terms of the agreement were accidentally found by Moffett when he was going through filings related to Vodafone, which owns 45% of Verizon Wireless..

While AT&T has a more manageable purchase agreement with Apple that covers $3.8 billion in iPhone sales for 2013, other carriers are also said to feel the pressure of huge contracts they signed just to bring the Apple iPhone to their customers. In 2011, Sprint signed a $15 billion pact with Apple to cover 4 years of Apple iPhone purchases. CEO Dan Hesse admitted at the time that Sprint would be paying a higher 40% subsidy to Apple. At the time, the deal with Apple wiped out Sprint's cash holdings and the carrier said it would need $7 billion. No wonder the carrier came running into SoftBank's arm this year when the Japanese telco offered its deal that included a capital injection into the company.

Another company that signed a bad deal with Apple in retrospect is pre-paid carrier LEAP Wireless. The company paid $900 million in 2012 and has sold only half of the units it cpntracted to buy. In February, company executives admitted that the carrier could be on the hook for $100 million in iPhone sales that never occurred.

source: WSJ

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