What Loss of iPhone Exclusivity Could Mean for AT&T’s Stock

AT&T (NYSE:T), the second largest mobile operator in the US, has had an exclusive agreement with Apple (NASDAQ:AAPL) to distribute its iPhone in the US since the launch of the phone in 2007.  Despite subsidizing the phone, AT&T has generated significant value from the iPhone in the past two years.  The phone’s widespread use has helped AT&T gain market share and boost its mobile phone revenue.

Mobile Phones & Plans 43% of AT&T’s stock

AT&T sells mobile phones to customers along with prepaid or monthly payment subscriber plans. We estimate that the Mobile Phones & Plans business constitutes about 43% of $37 Trefis price estimate for AT&T’s stock.

iPhone Added 2% Market Share to AT&T

Apple sold about 43 million iPhones globally from June 2007 through the end of 2009.  During the same period, AT&T’s subscriber count increased by about 22 million, implying more than a 2% rise in market share, with the iPhone driving a significant part of the increase.

In addition to the monthly subscription fee that AT&T earns from iPhone subscribers for voice service, the company earns higher monthly data (internet, SMS) fees from iPhone subscribers than it does from the average AT&T subscriber.  About 3% of iPhone users generate 40% of the data traffic on AT&T’s network.

Currently we estimate that AT&T’s mobile phone market share will stabilize around 31% by end the Trefis forecast period.

The migration of iPhone users to competing networks like Verizon and Sprint in the US would hurt AT&T’s mobile voice business and its mobile data (internet, SMS) business.  You can modify the forecast above to see how AT&T’s stock could be impacted if the loss of iPhone exclusivity were to result in erosion of its mobile subscriber market share.

For additional analysis and forecasts, here is our complete model for AT&T’s stock.