The arrival of a CDMA iPhone for Verizon Wireless is widely expected to raise customer defection at AT&T, with some analysts saying the ripple effects could spread to Sprint and T-Mobile USA.
Estimates on the number of customers who may defect from AT&T to Verizon for the iPhone range from about 1 million to 6 million over the course of the next two years, with many analysts predicting the deal will affect Sprint and T-Mobile as well.
Stifel Nicolaus analyst Chris King said in a research note that between 5 million and 6 million of AT&T’s current iPhone subscribers could switch to Verizon over the next two years, with Sprint’s postpaid subscriber base under “significant pressure” from the deal. King said the iPhone could make Verizon the only national carrier in the U.S. to grow its postpaid subscriber base this year and expects the operator to add 6.2 million total wireless subscribers in 2011.
“We believe the iPhone launch on Verizon will create ripple effects throughout the industry, the most notable of which may very well be putting Verizon Wireless in a position to be the only national carrier that is able to grow post-pay subscribers throughout 2011,” King said.
Other analysts expect the impact of a Verizon iPhone to be much lower. Ross Rubin, NPD Group’s executive director of industry analysis for consumer electronics, says contracts will stop customers from defecting en masse to Verizon for the iPhone.
“It’s not like a movie’s opening weekend, where there are very low barriers to entry for something becoming a hit,” Rubin says. “The best opportunity Verizon has is within its own customer base.”
Rubin also says a Verizon iPhone could attract Sprint and T-Mobile customers who wanted the device but did not want to sign up with AT&T.
UBS analyst John Hodulik said in a Bloomberg story that an estimated 2.3 million of AT&T’s iPhone customers will switch to Verizon over the next year, with an additional 10 million Verizon customers upgrading to the device and about 1 million customers coming in from other operators. He estimates that subsidy costs for the device could cost Verizon more than $5 billion this year.
The impact of the deal on AT&T also will be softened somewhat by the number of customers it has locked into a contract. According to Piper Jaffray estimates published by The Wall Street Journal, nearly 80 percent of iPhone users are on a family or corporate plan and about three-quarters still have at least a year on their contracts. AT&T charges a 10 percent restocking fee and a $325 early termination fee for the iPhone which is decreased by $10 for each month of service, effectively locking customers into their contract. Under the terms of AT&T’s customer agreement, an iPhone customer who wants to get out of their two-year contract after 23 months would still have to pay an early termination fee of about $95.
The heavy subsidy costs of the device cut into AT&T’s profits back in 2008 and some expect Verizon to take a similar hit. King lowered his 2011 earnings-per-share estimate on Verizon by 17 cents to $2.19 after reports the iPhone was finally on its way to Verizon, saying that Stifel Nicolaus believes that iPhone subsidies will have a “negative near-term impact on Verizon’s financials.”
The iPhone has been tremendously beneficial to AT&T despite the devices’ heavy subsidy costs. The operator activated 11.1 million iPhones in the first nine months of 2010, with about a quarter of those subscriptions coming from customers new to AT&T. Despite the iPhone’s benefits to AT&T’s bottom line, the operator claimed in August that losing its exclusive grip on the device would not “have a material negative impact” on profits in its wireless division.