AT&T (NYSE:T) is expected to announce its Q2 earnings on July 21st. Over the last few quarters, we have observed that the growth of new subscribers additions has declined for AT&T. We expect this trend to continue this quarter as well given general mobile market saturation and heightened competition from Verizon (NYSE:VZ) and Sprint (NYSE:S). However, the major factor to look out for in the upcoming earnings release is whether the loss of Apple’s (NASDAQ:AAPL) iPhone exclusivity has started to hurt AT&T or not.
Our $38 price estimate for AT&T stock is about 25% above market price.
Subscriber Additions Slowing
During the last few quarters, AT&T has experienced a slowing in new subscriber additions. For example, AT&T added 2 million net subscribers in Q1 compared to 2.8 million net subscribers in Q4 2010. [1] We believe this slowdown will continue and hence don’t expect its market share to make any significant gains in future.
iPhone on Verizon Not a Big Issue
The iPhone 4 was launched on Verizon’s network in February 2011. It was widely believed that Verizon would snatch iPhone subscribers from AT&T largely because of its superior network connectivity.
However, AT&T’s last quarter results did not show any signs that iPhone subscribers were defecting away from it. On the contrary, AT&T saw about 3.6 million iPhone activations during Q1 2011, out of which about 23% were new customers to AT&T. [2] Compared to the 2.7 million iPhone activations that AT&T had in Q1 2010, this was a notable increase. [3]
This Quarter
We don’t expect to see mass defections from AT&T’s iPhone subscriber base this quarter either as its $325 early termination fee continues to be a big deterrent for its customers to switch carriers. [4] Furthermore, AT&T has started to take steps to improve its network performance, which was a major complaint among iPhone subscribers before. [5]
See our complete analysis for AT&T stock here
Notes:- AT&T Investor Briefing Document, Available on AT&T’s website [↩]
- AT&T Q1 2011 earnings transcript, SeekingAlpha [↩]
- AT&T Investor Briefing Document, Q1 2010, Available on AT&T’s website [↩]
- AT&T early termination fees policy, company website [↩]
- AT&T Outlines 2011 Network Investment Highlights for Detroit Area, Reuters, April 14th, 2011 [↩]
