Verizon Is Giving Microsoft Another Shot


Things weren't always so good with Verizon and Microsoft .

Back in 2011 when Big Red launched the HTC Trophy running Windows Phone 7, the device failed to move a lot of units. Instead, the largest domestic wireless carrier continued to push Google Android as its operating system platform of choice. Then late last year, Verizon decided to give Microsoft another shot at its large subscriber base, which included 98.2 million retail connections at last count.

Three's company
Heading into the holiday season, Verizon launched two new Windows Phone 8 devices: Nokia's Lumia 822 and HTC's 8X. The Lumia 822 is a mid-range model selling for $50 on contract, while its flagship Lumia 920 is currently locked down by AT&T exclusivity for the time being. That device is also Nokia's only smartphone on Verizon's network. The 8X is priced higher, at $100 on contract, and for some mind-boggling reason the ancient HTC Trophy is still available for a ludicrous $180 on contract.

Big Red now has a third device coming to its Windows Phone 8 lineup in Samsung's ATIV Odyssey. That device launches tomorrow for $50 on contract after a $50 mail-in rebate, and shows that Verizon and Microsoft are taking each other seriously this time around.

The iPhone is taking over
This comes just after Verizon reported its fourth-quarter earnings, and Apple's iPhone reached a new all-time high in terms of its percentage of smartphones activated on Big Red's network during the quarter. Of the 9.8 million activations, 6.2 million of them were iPhones -- or 63%. Half of those 6.2 million iPhones were the newest iPhone 5, which is equipped with 4G LTE data speeds that Big Red hopes will drive data usage and fees.

That also shows that there was some pent up demand for iPhones at lower price points. This was the first quarter where Verizon had an iPhone model available for free on contract, which was the iPhone 4 that was first released in 2010.

Since Apple extracts much higher subsidies for its device than rival smartphone manufacturers, Verizon has every incentive to reduce the iPhone's dominance in its sales. This is exactly where building out its platform portfolio comes into play, and why the carrier wants more consumers to buy Androids, Windows Phones, and Research In Motion's BlackBerry 10 devices (the last launch on Jan. 30).

Can you hear me now?
Verizon CFO Fran Shammo's comments on the conference call confirm the carrier's motives:

We now have the Windows platform in our mix and we saw some steady albeit slow increase in some of the uptake of that platform. But as we get more and more platforms in the mix and now we have RIM out there again, there is going to be incremental competition, there will be subsidy reduction as there was in the basic phone history in the ecosystem.

At the same time, Verizon's heavy push of LTE-enabled smartphones continues to translate into higher data revenues. Out of total smartphone activations, 65% were LTE devices. That's helped drive the 6.6% increase in average revenue per account, or ARPA, to $146.80 per month.

Boosting data revenues with LTE usage while trying to reduce subsidies via platform competition is simply the name of the game here.

Big Red is watching
Yesterday, Apple shares were under pressure simply on Shammo's comment about "subsidy reduction," since the iPhone maker relies heavily on those payments from carriers. At the same time, Verizon CEO Lowell McAdam knows that the market's not ready to pay unsubsidized smartphone prices, so Verizon knows better than to risk losing customers by killing subsidies altogether. That's why Verizon will be watching rather closely this year as T-Mobile experiments with its brave new unsubsidized world.

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Fool contributor Evan Niu, CFA, owns shares of Apple and Verizon Communications. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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