Analysts debate iPhone 5's impact on AT&T

With the reported unveiling of Apple's (NASDAQ:AAPL) next iPhone less than two weeks away, analysts are beginning to evaluate what it will mean for U.S. wireless carriers. Specifically, analysts are focusing on AT&T Mobility (NYSE:T), given AT&T's historical role as the largest U.S. iPhone carrier.

Apple is expected to announce the next version of the iPhone on Sept. 12, and analysts at Jefferies & Co. think that it is "likely to top all sales records for the iconic device in the U.S. We estimate the carriers could sell 5 million iPhone 5s through pre-ordering and during the last 10 days of 3Q12 when iPhone 5 is available for sale."

The next iPhone is likely to include LTE connectivity, which could be a boon for the carriers working to free space on their overloaded 3G networks by pushing subscribers onto more data-efficient LTE networks. The Jefferies analysts--Thomas Seitz, Kunal Madhukar and Ankit Sharma--think that an LTE iPhone could benefit AT&T rival Verizon Wireless (NYSE:VZ) the most, since its LTE network now covers 75 percent of the U.S. population.

"We believe this network advantage could lead to a share shift towards Verizon, primarily at AT&T's expense--which we estimate could see its market share of iPhone sales decline modestly to 45 percent in 3Q12 from 47 percent in 2Q12." Verizon expects to cover 260 million POPs with LTE by year-end, AT&T expects to cover around 150 million, and Sprint Nextel (NYSE:S) expects to cover around 123 million.

AT&T spokesman Mark Siegel declined to comment.

However, Wells Fargo analyst Jennifer Fritzsche said there is little reason for AT&T to be concerned. She noted that changes in AT&T's upgrade policy and the high proportion of AT&T customers in family plans will limit AT&T customer losses. 

And how will the iPhone impact carrier margins? Jefferies expects Verizon and AT&T's service EBITDA margin to fall 4 to 6 percent for the third quarter, while Sprint will see a drop of 5-6 percent, as the carriers take on greater subsidy costs. "We note, margins are likely to better in 4Q12 than previously expected, due to iPhone sales being pulled into 3Q12," the Jefferies analysts wrote. Fritzsche wrote that she expects AT&T's overall wireless margins to improve in 2012 compared with 2011.

For more:
- see this Barron's article

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