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As iPhone brings in record profits for Apple, AT&T and Verizon see losses

by Phil Hornshaw

AT&T and Verizon reported selling huge numbers of iPhones during the October through December quarter of 2011, but that didn’t stop the nation’s two biggest carriers from seeing losses.

Verizon and AT&T both had earnings calls in the past week in which they ran down the last quarter’s numbers, with both noting big iPhone sales figures – and big losses. Verizon’s net losses for the quarter were $2.02 billion, which it blames on several things: employee pensions, severance payments, and an increase in what the carrier pays to Apple in subsidies for the privilege of carrying the iPhone.

As MacWorld reports, despite the payments and the losses, Verizon’s mobile revenues still grew during the quarter. Mobile revenue increased 13 percent in the last quarter of 2011 as compared to the same period in 2010, hopping up to $18.3 billion. Revenue from mobile data was up even more, increasing by 19.2 percent.

The iPhone effect hit AT&T as well, which reported that some 80 percent of all the smartphones it sold during the quarter were iPhones, according to a ZDNet report. AT&T said it sold 9.4 million smartphones in the quarter, of which 7.6 million were iPhones. But AT&T still had a pretty big loss for the quarter, at $6.7 billion, due mostly to the fizzling of its planned merger with T-Mobile, pensions and losses in the company’s directory business. The carrier also felt the squeeze of higher subsidies from Apple, which cut its smartphone sales profit margins, just like Verizon.

Meanwhile, Apple reported an insane record quarter: $46.3 billion in revenue and $13.8 billion in profits. Apple’s huge numbers had a lot to do with the popularity of the iPhone 4S, which helped its iOS operating system to overtake Google’s Android in the U.S., if only by a margin of 0.1 percentage points. Still, it’s an interesting snapshot of Apple’s success in negotiation. Two of the major U.S. companies that carry Apple’s smartphone are finding that doing so is squeezing their profits, while Apple is turning its gains around for the best quarter it has ever seen.

The popularity of the iPhone means carriers want to have it, if only because their customers want to buy it. But even so, the iPhone’s success is not necessarily a giant success story for all involved. It also gives Apple room to increase carrier subsidies like it did last quarter. One wonders if Apple leaning on AT&T and Verizon might result in those companies pushing more Android products instead, where subsidies are lower and more profits can go to the carriers.