AT&T: Apple iPhone, Broadband Boost Target Price

Bear Stearns analyst Mike McCormack Thursday morning said that the impending arrival of Apple’s (AAPL) iPhone on June 29th should help AT&T (T) steal away market share in the cellular business from Verizon Communications (VZ), Sprint (S) and Deutsche Telekom’s (DT) T-Mobile in the U.S.

The phone could add an additional 915,000 subscribers to AT&T’s roster in the second half of this year, increasing the company’s share of subscriber additions, minus those that leave AT&T, to 31.6% of the industry’s net new additions, from a prior estimate of 24.6%, which would be higher than Verizon’s share of net additions of 29.2% — basically, AT&T and Verizon just switched places in McCormack’s estimate!

Sprint and T-Mobile would be most hard hit, says McCormack, because the quality of Verizon Wireless’s network would mean fewer defections.

The iPhone can add 4 cents per share in earnings to AT&T next year, says McCormack, and he’s raising his price targets for both AT&T and Verizon to $44 and $47, respectively, from a prior $43 for each stock.

And for those of you compiling iPhone spreadsheets, McCormack’s assuming Apple ships a total of 450,000 iPhones in the third quarter, 1.23 million in the fourth quarter, and 6.33 million in 2008, as a “base case,” scenario, with the possibility of 12 million being shipped in that time in a “high case” scenario (he assumes AT&T sells 50% of those units, Apple selling the other half).

That’s much more reserved than a Caris & Co. estimate Eric noted on Tuesday for sales of 22 million iPhones in 2008.

In addition to the iPhone, McCormack has a note about AT&T’s presentation at the Bear Stearns Technology Intenet/Communciations Conference on Tuesday, where AT&T talked about U-Verse, its high-speed Internet service. McCormack said AT&T disclosed it had a jump in subscribers this quarter, to 40,000 from 13,000 in the first quarter, and the company is installing 600 new connections a day for U-Verse. The average installations per week should be at 10,000 by year end, expects AT&T, as the installation time drops from 6 hours to 4, notes McCormack. And, he notes, “early results suggest a greater migration of cable customers, a positive in our view.”

On the wireless point, my take is that McCormack is one of the many people who may be talking about a shake-out in U.S. wireless services as we move into the rest of the year, with the two top carriers, AT&T and Verizon, consolidating their hold on the market at the expense of the two smaller carriers, Sprint and T-Mobile. I expect to hear more comments in that direction in coming months.

With the recent announcement that the Federal Trade Commission is banning future CDMA-based phones made with chips from Qualcomm (QCOM), giving a boost to AT&T’s GSM-based cellular service, it sure seems like a perfect storm is brewing for AT&T this year.

Unless, of course, the iPhone is a disaster.

Comments

[bryanz:]

I don't think T-Mo will be as hard hit as many people think because a large number of subscribers enjoy T-Mo because it's CHEAP. 1000 minutes for $40 at T-Mo vs 450 minutes for $40 at AT&T? I would think that most people that are drawn to value-per-minute idea will be hesitant to switch simply because there's an iPod that can answer phone calls at another carrier, and one that costs $500 in addition to a 2-year agreement.

I'm not saying the iPhone won't be a big sucess for AAPL. I'm sure it will. But I feel the analyst is getting the net new additions number wrong. How many people in the US that have the disposable income to drop $500 on a cell phone don't already have one?

2007 Jun 18 10:17 PM