iPhone may boost AT&T subscribers by nearly 1 million in 07
Apple'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&T’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 carrier’s 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 Verizon’s 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.
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&T’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 carrier’s 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 Verizon’s 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.
Comments
We'll probably be in line to get an iPhone in 15 days.
Hope it's true. I don't want a data plan so would just use the Web features at wireless hotspots.
Just called a local AT&T vendor that'll be selling the iPhone. I mentioned that my wife has a TracFone that uses Cingular and could I just take the SIM card out of it and put it into an iPhone. He said YES! Wow! The iPhone doesn't come with a SIM card so the only way to get one is to buy service from AT&T or just place your existing SIM card into the iPhone. Cool!
We'll probably be in line to get an iPhone in 15 days.
Hope it's true. I don't want a data plan so would just use the Web features at wireless hotspots.
if i'm reading that report correctly they anticipate 4.4 million iPhone signups thru 2008; wasn't apple predicting 10 million during that period? seems like there's a news angle being ignored here.
The other ~5 million are likely existing AT&T customers -- according to the report -- who will simply trade up to an iPhone on existing contracts. They won't be counted as new subscribers because they are existing AT&T customers.
Best,
K
Just called a local AT&T vendor that'll be selling the iPhone. I mentioned that my wife has a TracFone that uses Cingular and could I just take the SIM card out of it and put it into an iPhone. He said YES! Wow! The iPhone doesn't come with a SIM card so the only way to get one is to buy service from AT&T or just place your existing SIM card into the iPhone. Cool!
We'll probably be in line to get an iPhone in 15 days.
Hope it's true. I don't want a data plan so would just use the Web features at wireless hotspots.
Hmm, remember that these guys probably know less than we do at this point. Everything I've heard suggests that you'll need to buy a 2-year contract to buy the iphone. I hope what he says is true though.
if i'm reading that report correctly they anticipate 4.4 million iPhone signups thru 2008; wasn't apple predicting 10 million during that period? seems like there's a news angle being ignored here.
I believe the '10 million iPhones' figure includes Europe and Asia.
The iPhone will be doing a staggered rollout worldwide, remember?
.
Hmm, remember that these guys probably know less than we do at this point. Everything I've heard suggests that you'll need to buy a 2-year contract to buy the iphone. I hope what he says is true though.
Note that Apple removed the line from its iPhone TV ads that mentioned the 2-year requirement.
We won't know all the details for another couple weeks.
Impressive.
if i'm reading that report correctly they anticipate 4.4 million iPhone signups thru 2008; wasn't apple predicting 10 million during that period? seems like there's a news angle being ignored here.
The other ~5 million are likely existing AT&T customers -- according to the report -- who will simply trade up to an iPhone on existing contracts. They won't be counted as new subscribers because they are existing AT&T customers.
Best,
K
It's possible that we're confusing the "10 million iPhones sold [worldwide, actually] by end of '08" MWSF keynote prediction with the analyst's report that ATT would have 10 million net adds through the end of '08 (5.4 mil in '07, 4.6 mil in '08)- only some of which would be due to iPhone sign-ups, obviously.
.
You can consider me 1 in a million
My wife and I too Way to go AT & T.
Remember Parliphone?
I bet in a few years people will know the name of the Verizon guy that turned Steve Jobs down and it will spoken of in the same vein as the recording companies that snubbed the Beatles.
Cancel current T-Mobile account: $200
Cingular deposit: $300
iPhone: $499
Conclusion: I will not be purchasing an iPhone.
I have never paid one cent as "deposit" with a single mobile phone company for as long as I've owned mobile phones, which is over 15 years! And, I've probably rotated thru all the major ones (in some cases, their predecessors).
Is the claim above normal?
Even with my good credit, I called to find out if I would have a deposit if I switched to At&t/Cingular. Three. Hundred. Dollars.
I have never paid one cent as "deposit" with a single mobile phone company for as long as I've owned mobile phones, which is over 15 years! And, I've probably rotated thru all the major ones (in some cases, their predecessors).
Is the claim above normal?
Not a guru on this, but it seems to vary tremendously from carrier to carrier, and even year to year with the same carrier.
If a carrier feels like it needs to add a lot of new customers, suddenly it 'relaxes' its credit requirements a bit (or a lot) I think Sprint was pretty famous for doing this, and they may still be doing it. Conversely, if a carrier is getting a lot of non-paying customers and more churn due to letting the riff-raff in, they'll tighten.
Amp'd Mobile recently got in a lot of trouble by being too easy on the credit requirements, apparently... nearly half of their customer base was having payment issues, which helped push the company into Chapter 11 bankruptcy.
It may be that ATT/Cingular is tightening up lots on credit requirements, in order to reduce their churn. If you let only good customers through the door, its less likely that you'll have to terminate their service for (chronic) non-payment later. But if you're really curious about this sort of thing, I'd go to someplace like PhoneScoop or HowardForums and ask there... a lot of cellular reps hang out in the forums at those two places.
I myself have never had to put down a deposit, and my credit's only a bit above average (due in large part to refusing to pay a sizeable billing error made by SBC, now AT&T).
.
I stand by the belief that Apple is limiting it's sales and potential by only releasing the iPhone to one carrier. I work for Best Buy, and almost every Cingular sign up I do requires some sort of deposit. Even with my good credit, I called to find out if I would have a deposit if I switched to At&t/Cingular. Three. Hundred. Dollars.
Cancel current T-Mobile account: $200
Cingular deposit: $300
iPhone: $499
Conclusion: I will not be purchasing an iPhone.
What do you consider 'good credit'? I've never had to do anything like that. Are you a student? Maybe that has some bearing.
What do you consider 'good credit'? I've never had to do anything like that. Are you a student? Maybe that has some bearing.
I am a student, however, I haven't taken out any loans and I have no credit card debt. I guess I could fall under the category of having no or little credit. Still, I have signed up for both Sprint (horrible company. I canceled right away. First time I'd say it was worth it to pay a cancellation fee) and T-Mobile without needing to pay a deposit.
I work at Best Buy, and I do cell phone activations. Cingular has been consistent with their high deposit rates. $200 being the lowest I've seen, $700 being the highest. At least 2/3 of the activations require some sort of deposit. No other cell phone company that we deal with (Verizon, Sprint, Amp'd, etc) has this problem.
It's sad, because I have the money to buy an iPhone, and I wouldn't mind switching carriers. However, I refuse to pay an additional $300. The iPhone looks rad but it's not worth a $1000 blow.