Fourth quarter results for Verizon Communications Inc. (NYSE: VZ) were no better than so-so. The company reported revenue of $26.4 billion and EPS of $0.54, excluding one-time items, compared with revenue expectations of $26.47 billion and EPS of $0.55. The company also announced an unlimited data plan costing $30/month for its smartphone customers, which includes those customers chomping at the bit to buy an iPhone from Apple Inc. (NASDAQ: AAPL) when the iPhones go on sale on February 10th.

The company’s Verizon Wireless business, jointly owned with Vodafone Group plc, posted revenue of $16.1 billion and a total of more than 94 million wireless customers. Net additions to wireless subscriber numbers fell 55.8% from the same period a year ago.

That drop could be attributed to potential customers willing wait for the iPhone, which until now has been available exclusively from Verizon competitor AT&T (NYSE: T). AT&T reports its fourth quarter results later this week, and analysts are expecting EPS of $0.55 on revenue of $31.46 billion.

The positive news for Verizon is that new wireless customers chose smartphones by a margin of three to one, which suggests that the company’s unlimited data plan coupled with the iPhone will be a huge success.

That’s not a foregone conclusion though, because the total number of US wireless phone customers is approaching the country’s total population. What this means for Verizon, and AT&T, Sprint Nextel Corp. (NYSE: S) and T-Mobile, is that they have to convince existing customers to buy smartphones and sign up for the data plans to service those phones.

On top of that, the carriers prefer to have post-paid customers who sign up for two-year contracts rather than pre-paid customers who purchase minutes as they need them. The catch for the carriers, though, remains the subsidies they offer their post-paid customers on the price of a new phone.

While none of Apple, AT&T, or Verizon have commented on the subsidy the carriers offer for the iPhone, it is widely believed that Apple receives $600 for each iPhone that AT&T has sold and will receive a similar payment from Verizon. Verizon will sell its two iPhone models for $199 and $299 with a two-year contract. The company will have to sell an enormous number of iPhones to show a profit, especially if customers select the $30/month unlimited data plan.

The customers for those iPhones are most likely to be existing Verizon customers who dump their feature phones or their smartphones that use the Android operating system from Google Inc. (NASDAQ: GOOG) to switch to the iPhone. There’s no substantial net gain there for Verizon.

The company will poach some customers from AT&T and the other carriers, certainly, but the issue again is how many. If sufficient numbers of customers leave AT&T and its notoriously clogged network for Verizon, then AT&T’s network could magically get un-clogged and its service would improve. That will limit the number of AT&T customers who have to switch.

Verizon’s shares are up more than 2% at about noon today, near the top of the stock’s 52-week range of $25.99-$37.70.

Paul Ausick

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.