Verizon iPhone Could Knock 5% Off AT&T Stock

+3.94%
Upside
17.60
Market
18.29
Trefis
T: AT&T logo
T
AT&T

Some 23% of AT&T’s iPhone customers would consider switching to Verizon (NYSE:VZ) if the iPhone became available through Verizon, according to a recent Credit Suisse survey.[1]   AT&T (NYSE:T) would take a minimum $3.5 billion revenue hit if that many iPhone subscribers actually fled, resulting in a 5% downside to our $37.91 stock price estimate.

Our analysis follows below.

AT&T’s mobile phone share

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AT&T has been the exclusive iPhone service provider since Apple (NASDAQ:AAPL) released the original iPhone handset in January 2007.  We estimated in a previous article that AT&T had nearly 13 million iPhone subscribers by the first quarter of 2010.[2]

There were 3.2 million iPhone activations in the second quarter of 2010, of which 27% were new AT&T customers. [3] We estimate AT&T’s current iPhone subscriber base at about 15 million, rising to 16 million by the end of 2010. AT&T would likely suffer slight U.S. mobile phone market share declines in 2011 if 23% of its iPhone subscribers (3.7 million) shifted to Verizon next year as the Credit Suisse survey predicts.

AT&T’s exclusive iPhone service deal has been one of the main factors driving its share gains in the U.S. wireless market. If Verizon and other carriers start selling iPhones, AT&T’s mobile subscriber growth rate can be expected to slow. Our current stock price estimate for AT&T assumes slower subscriber growth, but not the dramatic subscriber flight suggested by the Credit Suisse survey. You can drag the trend-line in the chart above to create your own U.S. mobile phone market share forecast for AT&T and see how it impacts the company’s stock price.

Revenue impact

iPhone customers tend to spend more on data and voice services compared to other AT&T customers. Losing 3.7 million subscribers would result in lower than expected growth in average revenue per customer (ARPU) from data services and additional declines in average postpaid voice ARPU.

These two factors suggest a total revenue loss of $3.5 billion, yielding a potential downside of 5% to our AT&T price estimate.

You can see the complete $37.91 Trefis price estimate for AT&T’s stock here.

[1] (Business Insider) Verizon Could Grab 23% Of AT&T’s iPhone Users If Apple Ends Exclusivity

[2] Estimated using Nielsen estimates for mid 2009 and new iPhone activations for each quarter thereafter

[3] (TechCrunch) AT&T Reports 3.2 Million iPhone Activations In Q2 2010