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

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



21. razmahtaz001

Posts: 501; Member since: May 11, 2013

so i guess apples greedy contract conditions/terms with the carriers has led to the reason why the carriers are charging its customers with ridiculous plans/packages. the us carriers should just drop apple iphone sales as did russia. apple is becoming a laughin stock of a joke corporation.

16. TheRetroReplay

Posts: 256; Member since: Mar 20, 2012

It's not Verizon or Sprint's fault that customers are buying what they want. If a customer wants a Samsung phone, they'll buy a Samsung phone. The customer isn't some misinformed sucker that would buy a ketchup popsicle while wearing white gloves anymore that will buy something just because a salesman said it's good.

15. roscuthiii

Posts: 2383; Member since: Jul 18, 2010

When's the contract up? Big Red may want to go the way of the... damn it, trying to come up with a good pun for Soviet Red here... Either way, with Russian carriers dropping a bad investment, Verizon may want to take note about showing whom has the leverage to make a better deal.

14. roldefol

Posts: 4745; Member since: Jan 28, 2011

It's a pretty sad example of how the carriers (particularly Sprint and Verizon) bend over backward for the 'privilege' of selling the iPhone. At this point, with Android firmly in the #1 spot and Samsung outselling Apple, there shouldn't be any commitments to sell any number of iPhones. The whole point of the iPhone was that it sold itself. If that's no longer the case, the onus should be on Apple to improve the phone, not on the carriers to push stale product.

22. razmahtaz001

Posts: 501; Member since: May 11, 2013

so basically apple is/has been forcing the carriers to sell the iphones to get where apple is today? i actually thought people bought the iphone for the bad

10. Galen20K

Posts: 588; Member since: Dec 26, 2008

kind of makes me glad T-Mobile waited so long to carry the iPhone since it practically bankrupted Sprint and put a burden on other companies. They waited until they made a deal that made sense and stated time and time again they wouldn't sacrifice the company for one single device. Smart move if you ask me, even if we didn't understand why it took so long back then.

11. lsutigers

Posts: 832; Member since: Mar 08, 2009

I hate to break it to you but if Verizon and Sprint, which have much more leverage and customers that T-Mobile got taken, so did T-Mobile.

12. g2a5b0e unregistered

Not really. Verizon & Sprint subsidize the iPhone. T-Mobile doesn't. You pay the full price. T-Mobile didn't get taken for anything.

13. networkdood

Posts: 6330; Member since: Mar 31, 2010

T Mo may have promised to purchase a specifics amount of phones from Apple, though.

8. Danishs

Posts: 147; Member since: May 23, 2013

Wow Apple is raping everybody. That's good business.

9. TechEnthu

Posts: 19; Member since: May 08, 2013

well no that isnt... after the end of the commitment from major carriers apple will be pressurised to change the terms of the deal which will be bad...

17. RomeoJDR

Posts: 245; Member since: Dec 09, 2011

Yeah it is. What phone do you think the carriers are going to have their sales team push the hardest when they're looking at taking a huge financial hit if they don't?

20. Larry_ThaGr81

Posts: 593; Member since: May 26, 2011

Sure it's good for Apple until other parties that enter in contracts stop being so stupid about the contracts they enter into. It's no wonder other parties such as carriers are looking to find my ways to cheat there customers.

5. Dorothy69

Posts: 498; Member since: May 21, 2013

Pretty iRoniC that one of the devices responsible for the Market Explosion which led to the development and release of much more advanced smartphones would be solely responsible for "Bursting the Bubble" and annihilating profit revenue. I hope these carriers don't have to file iBankruptcy due to Apple's voracious and ravenous greed.

6. abcdefgh

Posts: 471; Member since: Mar 29, 2013

exactly. now i know reason for fall of icrap in RUSSIA

4. mas11

Posts: 1034; Member since: Mar 30, 2012

No one forced these carriers to, "Make a deal with the Devil." There is always Android, WP and BB, which I would assume have much more reasonable contracts. Plus if these carriers pushed for pre-paid they wouldn't have to worry about this in the first place.

2. abcdefgh

Posts: 471; Member since: Mar 29, 2013

FACT A bite is taken out of the Apple logo to provide scale, so that the apple wouldn’t be mistaken for a cherry.

1. wumberpeb

Posts: 453; Member since: Mar 14, 2011

The double edged sword...

7. Droid_X_Doug

Posts: 5993; Member since: Dec 22, 2010

Meh. It works both ways. VZW isn't going to be dropping coin on a bunch of iP5 handsets. If Apple wants to make their numbers, they will release the iP5S before end of September, 2013. Then VZW places a big order that meets the purchase commitment and Apple and VZW skip happily off into the sunset. It is just bidness.

18. Larry_ThaGr81

Posts: 593; Member since: May 26, 2011

Yes that could happen in a perfect world, but the reality is that Verizon is going to realize that the Apple isn't keeping up with the trends and that they have bitten off more than they could chew in terms of what they could sale. The fact that Verizon was assuming that most of there consumers would go for the iPhone and more importantly, continue to do so is a testament to the lack of confidence that Verizon has in Google and phones makers of the Android OS. Other manufacturers like Samsung, LG and HTC are listening to consumers and making huge leaps in the technology they are bringing to the high end devices, while Apple is sitting back still doing things based on what they want and not what the consumers want. I'm not saying iPhone sales will take a substantial drop, but let's not expect them to make any noteworthy iPhone sales increases.

19. Larry_ThaGr81

Posts: 593; Member since: May 26, 2011

Let this be a lesson to cellular carriers not to make such ridiculous predictions based on passed historical information. I work for UPS and I can tell that times are constantly changing due to many factors so even we can't be to dependent on historical information. What makes Verizon or any other cellular carriers any different.

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