Verizon's iPhone: Analysts debate whether utopia has arrived

Verizon's iPhone: Analysts debate whether utopia has arrived

Summary: In the aftermath of Verizon Wireless' launch of Apple's iPhone, there doesn't seem to be much middle ground in the debate over the carrier's prospects. Worries about earnings and whether Sprint may wind up with the iPhone abound.

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In the aftermath of Verizon Wireless' launch of Apple's iPhone, there doesn't seem to be much middle ground in the debate over the carrier's prospects.

Goldman Sachs upgraded Verizon Wireless on Wednesday, but Deutsche Bank downgraded Verizon because the stock is pricey relative to AT&T even when you assume the iPhone juices sales. Other analysts are in the middle on Verizon and the iPhone.

Deutsche Bank analyst Brett Feldman said in a research note:

We are lowering our 2011 EPS estimate from $2.43 to $2.30 (consensus $2.26). The key driver of our revision is the launch of the iPhone and 4G devices, which should result in higher net adds and ARPU, but also higher handset subsidies. For example, we now expect Verizon to generate over 100% of industry-wide post paid net adds during 2011 (3.5M for VZ out of 2.3M total) as it gains market share while achieving accelerated post ARPU growth (4% by 4Q11 from 2% at 3Q10).

However, those gains come at a cost. Feldman says the launch of the iPhone will cut Verizon earnings by 20 cents a share due to higher subsidies---$400 vs. the usual $200 to $300. Earnings could take a bigger hit if demand is strong. Toss in network investment and the valuation gap with AT&T seems overdone, argues Feldman.

Related: Verizon officially lands iPhone: Answers to five big questions

Oppenheimer analyst Tim Horan said:

Unfortunately for the wireless industry, Apple gains more leverage to maintain high subsidies/profits and hurts competing operating systems and wireless carriers' profitability.

If Apple pushes Verizon to launch an early upgrade cycle---iPhone 5 is only five months away---for the iPhone profits would be hurt more. Horan added:

We believe that Verizon will stick with their 18-month to two-year handset upgrade cycle for existing customers, but if Apple pressure's VZ for a one-year upgrade like it did AT&T, this would be very negative for it and the sector. The one-year upgrade cycle has seriously impacted AT&T's profitability in the last six months, and VZ will be under some pressure to do so with an iPhone 5 coming in June and an LTE device 12 to 18 months from now.

Simply put, the iPhone economics are tough for Verizon and wild cards abound. In addition, AT&T isn't likely to lose many customers to Verizon due to contract lock-in and family plans.

The biggest wild card for Verizon is Sprint. The Apple-Verizon iPhone deal isn't exclusive. That fact means that another CDMA carrier like Sprint could sell the iPhone. Hudson Square Research analyst Todd Rethemeier said:

We were relieved to hear that this agreement between Verizon and Apple is not exclusive. In other words, other CDMA carriers are also free to negotiate with Apple to sell the phone as well. We believe that Sprint is the most likely to offer the device. While we haven’t spoken to Sprint, we think it is safe to assume that the company would also be interested in selling the iPhone, helping to level the playing field. In fact, with Sprint’s excess capacity, the user experience on an iPhone would likely be very good.

If Sprint gets the iPhone in short order, the Verizon calculus changes dramatically. Time will tell if these analysts are mere Verizon iPhone worrywarts or on to something.

Topics: Smartphones, Apple, Hardware, iPhone, Mobility, Telcos, Verizon

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13 comments
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  • RE: Verizon's iPhone: Analysts debate whether utopia has arrived

    You need to update your version of Adobe Flash Player to view this video.

    Fail zdnet.
    kent42
    • Works perfect with Chrome on Ubuntu. Nothing special to do at all.

      NT.
      DonnieBoy
      • RE: Verizon's iPhone: Analysts debate whether utopia has arrived

        @DonnieBoy, wow that was the most pointless comment ever!

        Or was it meant to simply show off your superiority?
        Stoshie
  • Puzzled by "middle"

    Your first sentence states, "there doesn?t seem to be much middle ground in the debate over the carrier?s prospects". Then, in your third sentence, you state, "Other analysts are in the middle on Verizon and the iPhone." These statements seem somewhat contradictory to me. Maybe I just didn't pay enough attention.
    bmgoodman
    • RE: Verizon's iPhone: Analysts debate whether utopia has arrived

      @bmgoodman
      There may be a case that you were too attentive, especially if we assume the person paid to write the title represents a baseline.
      DannyO_0x98
  • It is headlines like this

    that make me sick. Verizon iPhone and Utopia. It is just a phone on a Cell Phone Carrier people. Why is this such a big deal to everybody. If this was any other phone not made by Apple it would have only been a one article thing with the headline "Phone "x" coming to carrier "Y" THE END: No Utopia other related references. I like my iPhone 4 but it is not the greatest thing in the world.
    bobiroc
    • RE: Verizon's iPhone: Analysts debate whether utopia has arrived

      @bobiroc <br>There is an additional issue with the headline relating to the word "debate". No-one is debating anything. People might be discussion an issue, they might be providing an opinion on an issue or they might be doing something else. But one thing they are not doing is debating. A debate requires two sides, it requires three speakers on each side, an adjudicator and so forth and so forth. And, importantly, is requires a proposition starting with the word "That . . ." as in, "That meat pies are better than empanadas". Similarly, these fora are also not for debating, but for discussing.

      The problem with using the word "debate" in an inappropriate manner such as this, is that is leads to flamebaiters and halfwits on these fora to think that they are engaged in an intellectual exercise - something utterly beyond them! And yes, NZ, I do include you!
      Wakemewhentrollsgone
  • RE: Verizon's iPhone: Analysts debate whether utopia has arrived

    Perhaps now Apple will have no excuse for the iPhone's poor performance as a phone. It may be nirvana where calls finally don't get dropped or it may highlight the deficiencies in Apple's hardware and software.

    I still can't believe how many articles have been generated over the iPhone getting a new carrier - speaks to the frustration of owning an iToy.
    tonymcs@...
  • RE: Verizon's iPhone: Analysts debate whether utopia has arrived

    Yes.
    james347
  • The iPhone in Verizon will only prove ..

    .. once and for all if the Android phones are popular because they are good or just because of lack of choice.

    It will also prove once and for all, that there is no network good enough to handle thousands of (heavy user) iPhone owners within a small area (like during a mayor conference).
    wackoae
  • RE: Verizon's iPhone: Analysts debate whether utopia has arrived

    Perhaps the problem is less the iPhone, and more the technology gulf between the large carriers.<br><br>Verizon and Sprint on CDMA<br>AT & T and T-Mobile on GSM/UMTS<br><br>In the rest of the world it is GSM/UMTS that has almost exclisively won. When you are out of contract, iPhone, Android, Nokia, Samsung, Motorola - get your phone carrier unlocked, pop a new SIM in (if needed0 and off you go.<br><br>Any of the major carriers in the UK Vodafone (Verizon majority owner), O2 (Telefonica), Ornage/T-Mobile, 3, Tesco can run any phone, inc iPhone/3G/3Gs/4. from a previous contract, and all sell them too monthly contract or pay as you go.<br><br>Until there is any difference in the US, you have relatively little choice once you have made your original choice of phone/technology<br><br>CDMA - Verizon/Sprint<br>GSM - AT & T/T-Mobile<br><br>If you travel, or have a need to use a phone abroad, it is a no brainer - AT & T or T-Mobile with GSM, as you know it will work wherever you go.
    neilpost
  • RE: Verizon's iPhone: Analysts debate whether utopia has arrived

    If the iPhone were going to another carrrier it should have been a no brainer to give it to T-Mobile instead of Verizon. With Verizon it had to build a CDMA phone from scratch. While Apple and Verizon went out of their way to emphasize that their deal is not exclusive, what about the rumor that Verizon agreed to pay Apple a bounty to keep the phone out of T-Mobile's and Sprint's hands? Sure they can say there is no exclusivity, but with a hefty payment to Apple it doesn't have to let T-Mobile or Sprint have the iPhone. Viva capitalism as defined by Steve Jobs.
    rdc1@...
  • Jon Stewart Rejoices (or does he)

    I think Jon Stewart had the best take on this story:

    http://www.thedailyshow.com/watch/tue-january-11-2011/verizon-iphone-announcement
    Stoshie