To date, AT&T has been the primary Apple partner when it comes to the iPhone. Even with competition from Verizon and Sprint, AT&T has sold more iPhone units. Apple's move to support LTE, however, may change that equation.
Why? Verizon CFO Fran Shammo said Wednesday at a Merrill Lynch investment conference that the telecom's LTE footprint will be the equivalent to its 3G coverage by mid-2013. AT&T is racing with its LTE build-out and Sprint is just getting started, but neither carrier will have Verizon's 4G coverage for months to come.
The upshot here is that iPhone users, who have been wanting 4G speed since a year ago, could gravitate toward Verizon. Sure, family plans lock in users, but watch AT&T's churn rates from here out. There could be an LTE impact.
For Verizon, the wild card is what its profit margins would look like should iPhone users join its 4G party en masse. On one hand, Verizon would lose out on subsidies since Apple commands a premium. On the other side of the equation, Verizon would rake in data revenue as iPhone users blow through data tiers.
Shammo talked about the iPhone 5 in his talk. He said:
Well, I mean obviously we are extremely excited with this phone that is launching and obviously it is an LTE phone and given our LTE build program and where we stand versus our competitors and having as much coverage as all of them combined, double the amount of coverage than all of them combined, I think strategically we are in a very, very good spot. So we are excited to have this phone come to market. Apple is a great partner and I think we will do extremely well with the phone.
Now looking at margins here, I think the third quarter obviously is going to be a very short selling period. The question of supply comes in mind, how much supply will there be, how much demand will there be, will we be able to keep up with the demand and so forth. So I don't see a huge detriment here in the third quarter. I think we are coming off of a second quarter of a record high margin. We sold 200,000 more iPhones in the second quarter of this year than we did last year. We sold more LTE Android-based handsets than we did a year ago and we still posted the highest margin ever in the industry.
But there's a catch. Shammo added:
I think we are set up to have a very good fourth quarter and having on that one, I think it is going to come down to volume, how much volume there will be. And obviously the fourth quarter is always a high-volume quarter for us, but this could drive volumes higher for us, but again it will come down to supply and demand and we will see what happens here. But I would anticipate if the volume is high that margins will come down some.
Bottom line: Verizon has tweaked its pricing plans so that any margin hit from the iPhone is likely to be short-lived.
FaceTime and Voice over LTE
Shammo was also asked about FaceTime use on the iPhone 5 and network demand. He basically provided a no comment, but the exchange was notable given the recent AT&T Facetime hubbub. In a nutshell, it appears that Verizon sees video calling exploding on LTE and there may be some integration when the telecom adds voice services over LTE. Here's the exchange
An audience member asked: "Can I ask you a question about the new iPhone 5? It is going to have the ability to make Face Time calls over regular network instead of just over Wi-Fi. Do you think in general video calling is going to become something that is a small interesting option or is this potentially a gigantic new market and a lot of people are going to be using that feature?"
Shammo said: "Well, I mean I think that video calling is going to become more significant in the future. I think that when we release our VoLTE technology probably in '13, we do voiceover LTE through IP, there will be many, many more options for that going out. But I do think video calling will start to proliferate into the future."
David Barden, a Bank of America-Merrill Lynch analyst, followed up with: "You don't have any plans to charge a different charge for people who want to use that product?"
Shammo: "I won't get into our marketing plans at this point, but we will have the capability probably in '13 to offer that. Once we go to VoLTE, we will have that capability."