AT&T: What Apple's iPhone 4 means for its business

Apple's iPhone 4 is likely to spur a strong upgrade cycle for AT&T's third and fourth quarters, but raises questions about wh

Steve Jobs unveiled iPhone 4 and offered no hints about moving beyond AT&T as a carrier. Meanwhile, AT&T's "incredible generous upgrade offer" is likely to spark multiple upgrades to the iPhone 4. And those upgrades mean more AT&T subscribers on 2 year contracts. The launch of the iPhone 4 "will keep sales strong at AT&T throughout 2010," says Piper Jaffray analyst Christopher Larsen.

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Since the latest iPhone won't be available to June 24, AT&T is likely to see sluggish net addition totals in the second quarter ending June 30. The third and fourth quarters, however, should be strong for AT&T, which will be harvesting the gains from its exclusive deal with Apple.

"AT&T is offering iPhone users who would otherwise have to wait until late 2010 to upgrade (given the duration of their contracts) the option to upgrade early (at a subsidized rate)," says Barclays Capital analyst James Ratcliffe. "[The move] appears to be designed to lock them into new 2-year contracts."

Ratcliffe says AT&T's upgrade offer hints that there may be competition on the horizon. Ratcliffe, however, doesn't expect a 3G version of the iPhone to go to Verizon. Instead, the iPhone will be on Verizon as an LTE phone. Ratcliffe says:

(We) continue to believe that a Verizon LTE iPhone in the first quarter of 2011 is more aligned with Verizon's strategic and marketing positioning than a Verizon 3G iPhone launch in the fourth quarter of 2010 would be...AT&T appears to be moving to anticipate this, locking customers in to new 2-year contracts now, rather than wait and risk losing subscribers to other providers later in the year.

Now this speculation sets up yet another conundrum for potential iPhone buyers. After all, an iPhone 4 on LTE could be a dream. If a subscriber is already with AT&T the upgrade offer is a no brainer. If you're not and existing AT&T customer perhaps you should wait until the first quarter to see what happens. Macquarie analyst Phil Cusick says that he expects more than 70 percent of early iPhone 4 sales to be upgrades rather than gross additions for AT&T. Simply put, we need more clarity from Apple on the carrier plans going forward.

Among the moving parts as you ponder iPhone 4's impact on AT&T's business:

Negative: The Netflix application could tax AT&T's network. The streaming Netflix app will be over AT&T's 3G network. The natural question: Can AT&T's network handle it?

Positive: Jobs said the FaceTime video calling feature will be relegated to Wi-Fi for now and AT&T must be breathing a sigh of relief. Cusick says in a research note that Apple's move to keep FaceTime on Wi-Fi is "a positive given AT&T’s network constraints."

Positive: Along those lines, there is a question about the new data plans from AT&T, which are capped at 2GB for month before there are extra charges. Sam Diaz has been harping on this point, but I just don't get the hubbub and expect Verizon Wireless to follow suit. Of course, my data consumption on my smartphone doesn't come close to 2GB for month so I'd take the cap with a smile. However, if the iPhone 4 changes usage patterns there may be some incremental revenue for AT&T ahead as folks blow past the 2GB mark. But even then the charges are predictable: $10 a month for an additional 1GB. Related: AT&T revamps data plan pricing, adds iPhone tethering

Positive: Larsen said that AT&T may be able to make one more run at grabbing new subscribers with the iPhone 4. That run is bad news for Sprint, which has been talking up its Evo 4G. "We think the device is sufficiently better that it will once again accelerate subscriber additions at AT&T. Additionally, AT&T just reduced its data price points and introduced a $15 'teaser' plan to help those not sure they'll need the data to comfortably sign up," says Larsen.