Verizon sees margin hit from record iPhone sales

Verizon Communications Inc. said profit margins for its wireless venture dropped by about five percentage points in the fourth quarter due to record high sales of the Apple Inc. iPhone, the wildly popular smartphone that typically costs more for carriers to buy than other handsets.

Verizon Wireless - co-owned by Verizon Communications and Vodafone Group PLC - sold 4.2 million iPhones in last year's final three months, Verizon Communications Chief Financial Officer Fran Shammo told an investor conference Wednesday. That was more than double the 2 million iPhones activated in the third quarter.

Verizon and rival AT&T Inc. had said third-quarter iPhone sales were slower because of customers waiting to buy the newest version of the device, resulting in pent-up demand. Apple released its latest-version smartphone, known as the iPhone 4S, in mid-October on the three largest carriers including Sprint Nextel Corp.

The iPhone has become increasingly vital to Apple's profits. With sales of $47.1 billion, the device accounted for 43% of the Cupertino, Calif.-based company's revenue in its fiscal 2011, up from 39% the year before.

Shammo said he expected to report a roughly 500 basis-point decline to wireless margins compared to the third quarter, when it had operating income margin of 29%. The carrier began offering the iPhone in February, ending a four-year exclusive product for AT&T.

Separately, Shammo said Verizon is interested in offering an Internet-based streaming content service, though the company has no plans to buy another firm to help it do so. Verizon was reported to be interested in buying Netflix Inc. to more quickly roll out such a service.

Apple, meanwhile, said it plans to launch the iPhone 4S in China and 21 additional countries on Jan. 13. In addition to China - where Apple Chief Executive Tim Cook noted overwhelming response for the company's products -- Apple will make the iPhone available in countries such as Ecuador, Senegal, Uganda and Jamaica.Verizon shares closed regular trading at $39.21, down 1.3%, or 52 cents.

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