Verizon's iPhone could have little short-term impact on AT&T

12:00 AM CST on Wednesday, January 12, 2011

By VICTOR GODINEZ / The Dallas Morning News
vgodinez@dallasnews.com

So how much damage will the Verizon Wireless iPhone do to AT&T Inc.'s bottom line?

In the short term, probably not much.

Analysts offer varying estimates of how many subscribers Dallas-based AT&T could lose, with one prediction pegging it at 1.4 million defectors through 2012.

But the initial impact will probably be muted for several reasons.

AT&T recently made it much more expensive for subscribers to cancel their deals early, for example, while the iPhone model Verizon is getting offers almost no upgrades over the device AT&T has been selling since last summer.

Plus, if Apple sticks to its previous schedule of releasing new iPhone models every summer, that means the Verizon iPhone 4 will be obsolete in as little as six months.

That could encourage many prospective Verizon iPhone buyers to hold off a little while longer.

AT&T had little to say after the Verizon announcement in New York on Tuesday morning.

"For iPhone users who want the fastest speeds, the ability to talk and use apps at the same time, and unsurpassed global coverage, the only choice is AT&T," the company said in a statement.

Because of technical restrictions, phones on Verizon's 3G network cannot place calls and access the Internet simultaneously.

But on Monday, Ralph de la Vega, head of AT&T's wireless division, told The Wall Street Journal that AT&T will survive losing exclusive U.S. rights to the iPhone.

"We are ready for it," de la Vega said. "The short- and long-term viability of AT&T will be good whether we have exclusivity or not. We are much bigger than this."

The iPhone has been a blessing and a burden for AT&T since Apple launched the original model in 2007.

In the second quarter of 2007, which included the launch of the first iPhone, AT&T had total wireless sales of $10.4 billion and 63.7 million wireless subscribers.

In the third quarter of 2010, the company reported wireless revenue of $15.2 billion and said it activated 5.2 million iPhones in the period, the latest in a string of record quarterly activations.

At that point, AT&T had 92.8 million subscribers, a gain of 29.1 million.

Credit Suisse recently estimated that AT&T has about 18 million iPhone subscribers, or almost 20 percent of all its wireless customers.

Handling that surge of data-hungry users has been a constant headache for AT&T.

From 2007 through the end of 2009, wireless data usage on AT&T's network increased 5,000 percent.

The company has spent tens of billions of dollars on network investments over that time, both to boost its existing coverage and roll out faster data speed.

But those upgrades have often been buried under an avalanche of criticism about dropped calls and nonexistent Internet service.

Consumer Reports said last month that users ranked AT&T's wireless service as the worst in the U.S., while Verizon's was best.

Still, it's unlikely that many AT&T iPhone users will bolt to Verizon for at least several months if not years.

When the iPhone 4 came out last summer, AT&T eased its upgrade eligibility requirements a bit to let more users get the new phone.

But that generosity also locked many customers into new two-year contracts.

And getting out of those contracts early is more expensive than ever.

Last year, AT&T last year hiked its early termination fee on smart phones from $175 to $325.

Many users are also on complex family plans with multiple phones on contracts that end at different times, making it hard for users to switch providers immediately.

Credit Suisse estimates that just 1.4 million AT&T subscribers will end up switching to Verizon for the iPhone.

"The marketplace will now spend the next several months, maybe even quarters, resetting itself," independent telecom analyst Jeff Kagan said.

"During that time we will get a good idea on whether Verizon Wireless is really prepared for the sudden demand curve."

Where AT&T might suffer bigger losses, though, is among wireless subscribers exiting contracts from other carriers who might otherwise have migrated to AT&T.

Now, many of those free agents could instead opt for Verizon's iPhone.

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