LTE & iPhone, Verizon’s Recipe for Higher Smartphone Penetration

February 4th, 2011 by Trefis Team
+8.56%
Upside
39.19
Market
42.54
Trefis
VZ: Verizon logo
VZ
Verizon

Verizon (NYSE:VZ) competes primarily with AT&T (NYSE:T) and Sprint (NYSE:S) mainly in mobile business. The company recently released its Q4 2010 earnings and based on expectation of good subscriber additions and improving enterprise business, we have updated our price estimate for Verizon’s stock to $36.62, which is slightly above the current market price.

We expect Verizon’s subscriber gains to continue, and they could in fact be accelerated more than what we forecast based on how much impact does Verizon’s version of iPhone has on AT&T. We have written an article previously how AT&T is trying to minimize the loss of iPhone exclusivity (see article Life After iPhone Exclusivity – The Outlook for AT&T) There have been several surveys done in recent times that have indicated the possibility of defection of customers from AT&T as Verizon gets iPhone. If it turns out to be true, it could have significant impact of Verizon leading to sharp market share gains. The chart below shows Verizon’s postpaid retail market share (excludes prepaid and reseller customers).

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You can modify it to see how a higher share gain as a result of significant iPhone impact can lift Verizon.

iPhone is Icing on the Cake

The iPhone is additive to already good trends that Verizon is witnessing. Accelerating smartphone penetration is lifting Verizon’s data revenues and could potentially slowdown the decline in voice pricing as well since smartphones come with higher priced plans. The company’s smartphone penetration of the postpaid retail base increased to 26% in Q4 of 2010 compared to 23% in Q3 2010 and just 15% in Q4 2009. [1] That is big jump in just a span of 1 year. In fact for Q4 2010 alone, 75% of postpaid net adds were smartphones indicating the kind of acceleration that Verizon is witnessing. [1] AT&T is not seeing something different either.

But where Verizon gains over AT&T is opening of iPhone that can drive a whole new horde of customers. Not only this but Verizon has also been ahead of AT&T in laying out LTE network. While AT&T has been marketing its HSPA+ as 4G, Verizon has promoted its LTE. In just 3 weeks in December 2010, Verizon added about 65,000 subscribers to its 4G network out of which 41% were new to Verizon. [2] 41% is a big number! Could it mean that the subscribers may perceiving Verizon to continue to lead in terms 4G technology against AT&T? If it is so, this could further enhance the subscriber migration to the company driving further market share gains.

You can see the complete $36.62 Trefis price estimate for Verizon’s stock.

Notes:
  1. Verizon’s Q4 2010 earnings results report available from its website [↩] [↩]
  2. Verizon Q4 2010 earnings transcript [↩]