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Verizon iPhone Sales Rise 25% Though Apple Concerns Remain (Update 1)

NEW YORK ( TheStreet) -- Verizon (VZ - Get Report) said it activated 4 million iPhones from Apple (AAPL - Get Report) in its first quarter. The good news is that's 25% increase compared to the same period a year ago. The bad news is that people are still flocking to older phones.

On a conference call Thursday, Verizon Chief Financial Officer Fran Shammo said the New York-based telecom had sold 2 million iPhone 5 units during the quarter along with another 2 million 3G devices (read iPhone 4 and iPhone 4S). It's important to note that the market still craves Apple products though they're not seeing any significant difference between the iPhone 4, iPhone 4S and iPhone 5 to justify an upgrade.

This may also be another indication that Apple needs to produce a cheaper iPhone unless it can demonstrate major innovations to attract consumers. People want to own Apple products but they're not willing to pay for them without some genuine enticements.

It's also important to note that there's a huge price discrepancy at retail for the iPhone 4, 4S, and 5. The iPhone 4 is free (8 GB version) with a two-year contract, while the 4S starts at $99 (16 GB version). The 4 and the 4S have a lower average selling price (ASP) than the iPhone 5, as the 5 is a LTE device (Long Term Evolution), and has higher component prices.

It would not surprise me to see another revenue miss from Apple, given the lower ASP associated with the older iPhones.

Should the ASP come down on iPhones, that could be another reason for the telecoms to think about playing hardball on subsidies. Verizon, AT&T, et al. pay a large subsidy to Apple on the iPhone, as much as $400, initially easing the cost for consumers. That could force a reworking of the deal, though I suspect that's probably something for 2014 or 2015, if at all. I'd put the likelihood of a subsidy cut anytime in the next 12 months at 10% or less.

It'll be interesting to see what AT&T (T - Get Report) has to say when it reports earnings next week. Fortunately, or unfortunately, the telecom giant reports on the same day as Apple.

Analysts polled by Thomson Reuters are looking for Apple to earn $10.07 a share on $42.53 billion in revenue for the quarter ended March 31.

Shares of Apple were lower in Thursday trading, down 1.94% to $394.99.

-- Written by Chris Ciaccia in New York

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