Thursday, June 14, 2007, 03:00 pm
iPhone may boost AT&T subscribers by nearly 1 million in 07Apple's soon-to-be-released iPhone could potentially serve as a "very disruptive force "in the wireless industry, benefiting AT&T at the expense of the other "Big 4" carriers, according to investment bank Bear Stearns.
In a report to clients on Thursday, equity research analyst Mike McCormack said his latest model has the inaugural Apple handset contributing 915,000 new subscribers to AT&T's wireless network during the second half of this year, with an additional 3.5 million likely to follow in 2008.
McCormack's latest calculations represent an approximate 17 percent increase to his previous estimate of 5.4 million new subscribers in 2007, and a 76 percent increase to his 2008 estimate of 4.6 million newcomers. The iPhone should also help curb AT&T's churn (or loss of subscribers) during the same time frames, the analyst said.
"This improvement in churn reflects existing subscribers who were planning to disconnect but were retained as a result of the iPhone," he wrote. "While we have not factored into our estimates the impact of increased retail traffic in AT&s stores related to the iPhone, we believe this effect could contribute to further upside for the carrier."
McCormack expects AT&T to take share relatively equally from Sprint Nextel and T-Mobile, and slightly less from Verizon given the latter carriers brand loyalty and strength of network. "Prior to the iPhone, we forecasted AT&T would capture roughly 24.6 percent of total industry net adds in [the second half of 2007] versus 31.1 percent for Verizon," he explained. "Factoring in the impact of the iPhone, we believe AT&T will capture 31.6 percent of total industry net adds compared to 29.2 percent for Verizon."
In the analyst's opinion, the overall perception of Verizons superior network quality will result in a relatively limited impact to the carrier in terms of subscriber loss, particularly given its sizable subscriber base. According to his estimates, iPhone will result in roughly 199,000 additional disconnects for Verizon in the second half of 2007 and 751,000 incremental losses in 2008.
At the same time, the sheer size, scale and revenue diversity of both AT&T and Verizon will prevent either carrier from seeing much of a financial impact from iPhone during 2007. While the Apple handset will eventually become an important factor in setting the wireless landscape, McCormack estimates it will contribute less than a penny of earnings-per-share accretion to AT&T, and less than a penny of earnings-per-share dilution for Verizon for the rest of the year.
"In calculating the financial impact for both carriers, we maintained the same average revenue per sue and margin structure assumptions of the wireless units prior to the introduction of the iPhone," he wrote. "In addition, we are assuming AT&T effectively breaks even on iPhone hardware sales and believe the carrier could realize greater financial upside if it receives more favorable economics on the product, a strong likelihood, in our view."
The financial impact of iPhone should be become a bit more material in 2008, adding approximately $0.04 cents in per-share earnings for AT&T, according to the analyst. But at the same time, he said, the financial impact to Verizon should remain relatively muted, with iPhone-related disconnects contributing only $0.01 of per-share earnings dilution.
"We believe the negative impact is partially mitigated for Verizon given our expectations for slightly lower share losses than competitors Sprint Nextel and T-Mobile," he told clients.
Separate from his iPhone analysis on Thursday, McCormack increased his price targets on shares of both AT&T and Verizon to $44 and $47 price, respectively. Shares of AT&T rose 1.75 percent to $40.68 following to the report. Verizon shares were also up, slightly, to $43.25.
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