Verizon Could Owe Apple Billions as iPhone Sales Stall

by Matt Klassen on July 15, 2013

It’s been a slow year for Verizon selling Apple’s flagship iPhone 5, and if analysts are correct, Big Red could be left with a huge bill—and not to mention lots of unsold iPhone stock—when all is said and done. America’s largest wireless carrier reportedly has committed to purchasing $23.5 billion worth of iPhones in 2013—more than twice what it ordered last year—and by extrapolating Verizon’s current sales rate, it will likely owe Apple between $12 and $14 billion for not selling as many iPhones as it promised.

Long known for its draconian sales contracts with carriers, Apple has been one of the most difficult companies to partner with in the mobile world. In fact, since the inception of the iPhone carriers have had to take significant short term losses in order to subsidize the phone for consumers, recouping that investment—with razor thin profit margins mind you—over the course of a two year post paid contract.

But will Apple hold Verizon’s feet to the fire, demanding Big Red pay for every iPhone its agreed to purchase and lose its second biggest client, or will Apple find a soft spot in its cold dark heart for its partner who is struggling to sell its overzealous iPhone allotment, knowing that such short term forgiveness may actually spawn an all out carrier revolt down the road?

While this story is ostensibly about Verizon’s failure to sell iPhones, consider it instead evidence of one of the first major cracks in Apple’s once indestructible armour, the loss of control of carrier contracts. While Apple has said nothing about what it will do about Verizon’s slow iPhone sales–whether it’ll demand Verizon uphold its onerous carrier contract and purchase all $23.5 billion worth of iPhones (smartphones that will be nothing more than expensive paperweights come September)–the options for how this situation will resolve itself all seem like losing propositions for the Cupertino giant.

While Verizon is officially on the hook for the poorly estimated $23.5 billion worth of iPhones it has ordered and hoped to sell, its unlikely Apple will hold Big Red to every cent of those losses, given that Verizon is Apple’s second biggest customer and hasn’t yet signed any sort of distribution contract for next year. If Apple does pursue Verizon for complete satisfaction of this current deal, its short term gains would likely spell the end of its relationship with Verizon and perhaps even the end of the iPhone as we know it.

But here’s where things get tricky: If Apple lets Verizon escape out from under its punitive contract, other carriers could possibly see a ray of hope from their own onerous deals, possibly leading them to push the iPhone less, giving them leverage for better terms in future deals—which of course would mean less money for Apple.

In fact, despite the widespread secrecy over the details of Apple’s carrier contracts, its rumoured that Sprint has almost the same deal as Verizon, so if Big Red gets a break, why not Softbank’s newest acquisition as well?

So here’s the bottom line: Apple finds itself walking a delicate balancing act, strong arm Verizon and you’ve lost you’re second best customer; let Verizon off with a slap on the wrist, and you’ll soon have a carrier revolt on your hands.

While Apple tries to figure out what to do, let’s not forget what got the Cupertino giant into this mess to begin with, flagging iPhone sales. For several years now the iPhone has sat on its laurels, its massive sales figures generated by lots of hype and little substance. I think we all knew it wouldn’t take long for consumers to get bored, and here’s the first sign that the iPhone simply isn’t what it used to be.

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Written by: Matt Klassen. www.digitcom.ca. Follow TheTelecomBlog.com by: RSS, Twitter, Facebook, or YouTube.

{ 1 comment }

Joe Smith July 16, 2013 at 1:35 pm

No company would leave 12 billion on the table. Only a matter of time before the lawyers start firing up the billable hours dynamos

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