iPhone News Updated

Vodafone to Count Cost of IPhone in U.S.

Vodafone to Count Cost of IPhone in U.S.

Vodafone Group Plc (VOD) will give investors a sign of whether the cost of selling Apple Inc. (AAPL)’s iPhone is outweighing the benefits when the world’s largest mobile-phone company reports full-year earnings tomorrow.

Verizon Wireless, the U.S. venture in which Vodafone owns a 45 percent stake, may have paid as much as $880 million in upfront subsidies from selling 2.2 million iPhones in February and March, based on UBS AG analyst John Hodulik’s estimate for a subsidy of $400 per device. That’s more than $15 million a day.

The cost of marketing the iPhone, which Vodafone will quantify tomorrow, shows the balance phone companies have to strike when selling the latest smartphone to drive up data sales. The Newbury, England-based company said in February its full-year operating profit forecast excludes the iPhone effect.

“To my mind the jury is out on whether these things create extra value for the operators,” said Steve Malcolm, an analyst at Evolution Securities in London who has a “reduce” rating on Vodafone shares. “There is no question they create extra value for Apple.”

Vodafone shares dropped 0.3 percent to 167.05 pence in London trading as of 1:56 p.m.

The company may also report slowing growth in service revenue for the fourth quarter, according to analyst estimates compiled by Bloomberg. Service revenue for in the three months through March may have slowed to 2.1 percent from 2.5 percent in the previous period, the average estimate of 10 analysts showed. Service sales include revenue from voice, data, messaging and broadband offerings and exclude handsets and accessories.

Data Strategies

Total revenue may have risen 2 percent to 45.6 billion pounds ($74 billion) for the full year, according to the survey, slowing from 8.4 percent growth in the previous fiscal year. Adjusted earnings before interest, taxes, depreciation and amortization may have declined 1 percent to 14.6 billion pounds.

Operators are currently working out strategies to offer the right data packages and prices. Royal KPN NV last month lowered its full-year profit forecast and Investec Securities analyst Morten Singleton said the largest Dutch phone company had been “mispricing” its service packages as subscribers move away from voice and text message services towards data offerings.

Under Vodafone Chief Executive Officer Vittorio Colao, annual sales from mobile data have climbed to about 5 billion pounds since he took control of the company in 2008. Vodafone’s cost of sales climbed 34 percent between 2008 and 2010, according to Bloomberg data, as handset subsidies and license and mobile frequency costs soared.

Smartphone Boom

The British operator has said it plans to increase the percentage of sales from smartphones in Europe to about 70 percent in the fiscal year ending March 2013 from 30 percent last year. The company is switching to tiered pricing plans based on the amount of data used and quality of service. The Netherlands was the first market in which Vodafone brought in tiered pricing.

Wireless operators pay handset manufacturers such as Apple for a phone and then sell them to consumers for less to encourage people to sign up for longer-term contracts. Vodafone said in September last year that the highest profitability came from mid-tier smartphones rather than high-tier devices such as the iPhone or the Nexus S from Samsung Electronics Co. and Google Inc. (GOOG)

Estimates for Verizon’s subsidy per single iPhone range from Evolution Securities’ $300 to $400 to iSuppli Corp.’s $400.

Vodafone-Branded Smartphone

Vodafone today announced plans to sell its first own-brand smartphone on Google’s Android operating system. The device will be on sale by the early summer, the company said today.

Vodafone spokesman Simon Gordon declined to comment on the level of subsidies and the company’s earnings.

The total subsidy will vary as the operator could have subsidized other handsets instead of the iPhone, said Paul Marsch, an analyst at Berenberg Bank in London. “It’s the incremental impact not the absolute impact of each iPhone.”

Verizon Wireless, the largest U.S. wireless provider, may sell as many as 11 million iPhones in 2011, he said.

Verizon Wireless started selling the iPhone, which runs on the company’s third-generation network, in February, ending AT&T’s four-year U.S. exclusivity for the device. Verizon also in March introduced its first fourth-generation handset, the HTC Corp. ThunderBolt, and has been rolling out the faster network to boost sales of data plans and draw new customers.

Scale and Reach

Subscriber costs may start to stabilize as Vodafone benefits from its scale and global reach that allows it to get better deals, according to Robin Bienenstock, an analyst at Sanford C. Bernstein. Smartphone contracts help to lock in customers for the long-term, she said.

Vodafone has retained its stake in Verizon Wireless even after failing to receive a dividend from the company since 2005, while partner Verizon Communications Inc. (VZ) focuses on paying down debt. Verizon said in January it may pay a “fair dividend” to Vodafone.

Colao in April agreed to sell Vodafone’s 44 percent stake in SFR for 7.95 billion euros ($11.2 billion) to Vivendi SA. The sale brings the total value of Vodafone’s disposals to about $22.8 billion since September.

As Vodafone bets on driving data revenue and smartphone sales to make up for subsidy expenses, it’s still too early to say whether it will pay off, Evolution’s Malcolm said.

“There’s no guarantee in a year’s time that those costs will simply drop away.”

[Thanks: http://www.bloomberg.com]

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