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AT&T (NYSE:T) will report Q3 earnings on October 24th.

The Street expects:

  • Revenue: $31.6 billion
  • EPS: $0.60
  • Q4 guidance: $32.2 billion

Two key factors will affect this upcoming earnings result:

  1. The earlier than anticipated launch of Apple's (NASDAQ:AAPL) iPhone 5
  2. Shared Data Plan

Initially, the Street expected Apple to launch the much-anticipated iPhone 5 in Q4 for the holiday season. However, Apple started the pre-order of iPhone 5 on September 12th with deliveries starting on September 21st, so we saw 10 days of iPhone 5 sales in Q3. According to Apple, over 5 million iPhone 5s were sold during the three days after the release.

Prior to the launch of the iPhone 5, we saw some moderation of subsidy expenses partially due to a lower upgrade rate into the iPhone and a higher upgrade rate into Android devices, which carry lower subsidies than iPhones, due to their LTE capability. However, since the iPhone 5 also features LTE capability, I believe that the iPhone 5 upgrade rate will likely pick up given the strong demand for the product. As a result, margins will be lower than previously anticipated due to the higher than anticipated carriers' subsidy expense. I would like to note that lower margins would also affect other carriers, such as Verizon (NYSE:VZ) and Sprint (NYSE:S) that saw strong demand for iPhone 5 in Q3.

Aside from lower margins due to a sooner than expected iPhone 5 launch, investors should look for whether AT&T has benefited from its rollout of shared-data plans. Back in June, Verizon took the first step of introducing its Share Everything Plans, which gained positive traction among subscribers and allowed Verizon to dominate this customer segment by itself. Not until August did AT&T decide to introduce its own shared-data plan and it will be important to see whether AT&T made any significant inroads to capture part of this customer segment.

A final thought for investors to consider is whether AT&T is at a disadvantage with its weak LTE network. In the US, Verizon's LTE network covers 230 million POPs, which is more than other US carriers combined. In addition, the 370 networks covered by Verizon is seven times more than that of AT&T and Verizon's LTE network coverage is expected to be comparable to its 3G network by the middle of next year. As I mentioned earlier, iPhone 5 sales and an upgrade will likely pick up as it features LTE capability. That said, Verizon's investment in LTE is paying dividends and the company may continue to gain iPhone shares at the expense of AT&T.

Source: AT&T Q3 Earnings Preview: Lowering Margin Expectations