Verizon Wireless will finally get Apple's iPhone on Tuesday and the network and sales machine appears to be ready to roll, but the launch is only the beginning. The fallout will take quarters to play out for the likes of Motorola Mobility, AT&T and others.
Apple: The company just doubled its distribution for the iPhone and the prospects are rosy in terms of units. Piper Jaffray Gene Munster is assuming that AT&T will have flat iPhone units in 2011 at about 15 million. Verizon is expected to sell 15 million in 2011, according to Munster. The iPhone landing at Verizon will add $5.9 billion and earnings of $1.27 a share to Munster's current estimate. These estimates are a moving target depending on whether the iPhone hits Verizon stores in February or March.
AT&T: The sky won't fall for AT&T. However, AT&T will become less dependent on iPhone sales. That's not a surprise since AT&T is ramping Android handsets. Analysts are generally expecting limited cannibalization for AT&T. I'm in the camp that agrees with that theory. Many folks are already locked into AT&T. Piper Jaffray analyst Christopher Larsen wrote:
While AT&T’s iPhone exclusivity has brought in many new customers from other carriers, this trend has waned in recent months; most iPhones sold today are upgrades for current AT&T customers. (However, the recent lower price points at $99 and $49 for refurb and 3GS appear to have driven some measurable traffic post-Christmas.) The real question is will AT&T customers defect for the Verizon iPhone? We don’t think so. Nearly 80% of iPhone users are on a family plan or corporate plan and approximately 75% still have at least a year left on their contracts, by our estimates.
Over the next few days, we suspect that investors will read many comments about how this won’t be THAT bad for AT&T. We would urge investors to consider the following math (all are estimates, since the company hasn’t reported 4Q results yet). In 2010, AT&T had 11.1 million postpaid gross adds, with 8.6 million disconnects, resulting in 2.5 million net adds. About 37% of those gross adds, or 4.1 million, were on the iPhone. Now, if we assume that AT&T loses 50% of the iPhone gross adds (i.e. AT&T and Verizon split the new iPhone sales evenly), this means that AT&T’s gross adds will drop by about 2.05 million (50% of the 4.1 million). So, AT&T’s overall postpaid gross adds are now 9.0 million (11.1 million less the 2.05 million). The disconnects of 8.6 million don’t change, and AT&T’s postpaid net adds are now 400k for the full year. And, this is only assuming that Verizon takes 50% share of the new iPhone sales – it doesn’t assume that any of AT&T’s existing customers cancel their contracts and switch to Verizon.
Motorola Mobility: No company has been more tethered to the success of Verizon's Droid franchise in the last year. Motorola's wireless division would be on the scrap heap if it weren't for Android and Verizon Wireless. The company is now hitching its wagon to 4G and LTE. If the iPhone isn't LTE, Motorola Mobility may be just fine. In any case, Motorola Mobility did a nice job of diversifying with AT&T.
Verizon Wireless: Verizon is a clear winner here, but may not get the windfall you'd think. The company was already holding its own with Android devices. Verizon doesn't need the iPhone as much as it did two years ago. Nevertheless, Verizon is likely to gain market share with the iPhone. One huge wild-card is the network. Verizon is thumping its chest that its network can handle the iPhone. If Verizon's network stumbles AT&T's network reputation could actually improve. Related: Verizon iPhone: How important is 4G LTE capability?
T-Mobile and Sprint: If Verizon gets its own exclusive deal with the iPhone, the two other major wireless carriers would be locked out of the iPhone/iOS market. That would be a big problem for both carriers. In fact, Sprint and T-Mobile could ponder a merger if they started to lose share. A merger between Sprint and T-Mobile would be a network nightmare though because incompatibilities abound.