Apple (NASDAQ:AAPL) announced Tuesday that the iPhone 4S will be available on all major U.S. telecom providers which include AT&T (NYSE:T), Verizon (NYSE:VZ) and Sprint (NYSE:S). The most important announcements relevant to telecom providers that Apple made was that iPhone 4S will support faster network download speeds and iPhone 3GS will be available for free with a two year contract. However, among all carriers, we believe that AT&T stands to gain the most from these announcements.

Our $39 price estimate for AT&T stock is about 35% above market price.

See our complete analysis for AT&T stock here

3 Reasons Why Apple’s Announcements Are a Boon to AT&T:

1) iPhone 4S to support faster network download speeds:

Apple has optimized the 4S to support twice the download speed on AT&T’s network while leaving the CDMA or code division multiple access network technology operated by Verizon and Sprint no comparable improvement in speed.^[1] The 4S will support download speeds with HSDPA of up to 14.4 Mbps to help users access faster data speeds. Although AT&T’s network doesn’t currently support speeds this high on its network, AT&T will nonetheless make improvements to its network to support higher download speed levels and so users should see some improvement in performance.

2) iPhone 3GS to be sold free:

Before the iPhone 4S, AT&T has been an exclusive provider of iPhone 3GS along with iPhone 4 in the U.S. with Verizon selling only the iPhone 4 version. In yesterday’s event, Apple announced that the iPhone 3GS will be sold free with a two-year contract, down from $49. This announcement will attract many users who were looking to upgrade to iPhone, but are cost conscious. This could lead to higher data usage, which could then raise average revenues per customer (ARPU) per customer.

3) iPhone 4S on Sprint:

The iPhone 4S coming on Sprint network is actually an advantage to AT&T in its pursuit for the $39 billion acquisition of T-Mobile. Sprint has vehemently opposed this acquisition in the past and argued that the deal would make the U.S. wireless market an effective duopoly, and now that Sprint has the coveted iPhone, this essentially weakens this argument (see AT&T May Benefit the Most from Sprint’s iPhone Deal).

iPhone Raises More Questions than Answers for Sprints

This will be the first time that Apple will start offering iPhone on Sprint network, and we took a look at the potential impact that the iPhone 4S could have on Sprint’s stock in our earlier notes titled Sprint’s Huge Bet on the iPhone Threatens to Sink Stock and Why Investors Are Divided Over Sprint iPhone Deal.

To summarize, although the iPhone will help Sprint gain more subscribers and reduce churn, it will dilute margins due to the higher subsidy costs associated with the iPhone. Also given the rumored 30 million or so iPhones that Sprint has agreed to buy, the company is making a large bet on the future popularity of this franchise. This resembles the gamble AT&T made when the original iPhone launched though Sprint’s gamble is riskier as users can buy iPhones from any of the three major carriers as well as Apple itself and there are more challengers in the smartphone market.

Understand How a Company’s Products Impact its Stock Price at Trefis

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