Pulse Prognosis Update: AT&T vs. Verizon

Includes: T, VZ
by: Alacra Pulse Check Blog

By Sheena Lee

AT&T (NYSE:T) may have exclusivity on the iPhone (NASDAQ:AAPL) for now, but complaints about dropped calls and slow internet loading times have turned-off many users. This week, the telecoms operator showed that it is trying to step up its game and has agreed to buy Qualcomm’s (NASDAQ:QCOM) wireless spectrum for close to $2 billion.

Analysts said the acquisition will give AT&T more bandwidth and will allow the provider increased capacity for fourth-generation services, as competition will soon heat up against Verizon Communications (NYSE:VZ), which will also be selling iPhones early-to-mid next year.

Craig Moffett, an analyst at Sanford C. Bernstein & Co. who rates AT&T shares Market Perform, said:

The Qualcomm spectrum will help AT&T alleviate network- congestion problems such as those experienced by its customers who use Apple’s iPhone. This is very high-quality spectrum…It’s especially concentrated in the urban areas. It provides a very strong signal inside buildings and it’s extremely good at penetrating walls and windows.

Moody’s Investors Service raised its outlook on AT&T, citing better performance and efforts to cut down its leverage the past couple of years. Moody’s Vice President and Senior Credit Officer Gerald Granovsky said:

AT&T’s ability to restore its leverage to levels consistent with it’s A2 rating is a testament to the strength of the company’s business model and the resiliency of its cash generating capability amid increasing competitive challenges.

So far, sell-side analysts have not changed their 12-month price targets since our Nov. 11 prognosis on the company.

Verizon price target estimates have also been stable since our Nov. 12 prognosis, and Piper Jaffray’s Gene Munster thinks most of Verizon iPhone sales next year will be coming from AT&T clients.

Munster expects that Verizon will sell about 25 million smart phones in 2011, and just 36 percent, or 9 million, will be iPhones. In 2012, Munster forecasts a total of 78.3 million iPhones sold, with AT&T and Verizon each selling around 14 million.

Giga Om’s Kevin Tofel said Verizon needs to come out with the iPhone sooner than later, based on a recent report by ITG Research. Tofel pointed out:

…the numbers are alarming for Verizon because it means Verizon’s entire smartphone portfolio is getting outsold by Apple’s iPhone on the AT&T network. And more consumers, not fewer, are buying smartphones, with some estimates suggesting 50 percent of U.S. mobile subscribers carrying a smartphone by this time next year.

Verizon may soon have another weapon against AT&T, according to Kaufman Brothers analyst Shaw Wu, who suggests that Research in Motion (RIMM) devices using the BlackBerry 6 operating system may be introduced by Verizon Wireless between January and March. Wu speculates it may be the BlackBerry Torch handheld, or a similar style of device, according to Tech Trader Daily.

Disclosure: No positions