Is Apple Hurting or Helping AT&T?

Rumor has it that Verizon (NYSE: VZ  ) will get its hands on the Apple (Nasdaq: AAPL  ) iPhone in the near future. When that happens, presumably sometime next spring, the skies will darken, ominous thunder will roll, inexplicable plagues of locusts will invade the Western plains, and AT&T (NYSE: T  ) will evaporate in a cloud of irrelevance. Thus spake the prognosticators.

Except today, UBS Securities analyst John Hodulik says that the end of AT&T's exclusive iPhone deal might not spell the end of Ma Bell after all. Great to see you joining the party, Mr. Hodulik -- you're only a year late.

Hodulik posits that Verizon will indeed soak up much of the demand for fresh iPhone accounts, but that the predicted mass exodus from the AT&T network isn't in the cards. In fact, he thinks that AT&T should be able to reduce its marketing budget while Verizon whips up the mother of all advertising campaigns. That could lower the cost for each new user AT&T adds to its fold, while Verizon's costs should skyrocket.

To that, I would add that shifting the bulk of new iPhone accounts to Verizon will give AT&T some breathing room to enjoy its substantial network upgrades. On the flipside, those data-hungry users just might bring Verizon's mighty network to its knees, tarnishing the company's reputation as a sterling data server.

Mind you, there are plenty of "might," "perhaps," and "could" caveats to all of this. Hodulik assumes that overall smartphone growth is decelerating a bit, and that neither Deutsche Telekom subsidiary T-Mobile nor Sprint Nextel (NYSE: S  ) will get their hands on the iPhone when Verizon does.

And I think there's a hidden assumption in here somewhere about iPhone loyalty trumping whatever inventions and improvements the likes of Google (Nasdaq: GOOG  ) and Microsoft (Nasdaq: MSFT  ) can muster while Apple runs through its traditional yearlong cycle between serious improvements to the iPhone platform. All of these conjectures could turn out to be blatantly false in next year's 20-20 hindsight.

But as good as its exclusive iPhone deal has been to Ma Bell so far, I think we can all agree that AT&T should still do all right without it.

… Or perhaps we can't. Feel free to tell Anders off in the comments below.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. Google and Microsoft are Motley Fool Inside Value recommendations. Google is a Motley Fool Rule Breakers selection. Apple is a Motley Fool Stock Advisor pick. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


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  • Report this Comment On November 30, 2010, at 9:35 PM, baldheadeddork wrote:

    I'm not optimistic about AT&T or Verizon. Smart phone service has become a commodity thanks to Android, and the rise of low-cost/unlimited data smartphone service (like Boost Mobile) is going to become a major pain in the backside of T and VZ.

  • Report this Comment On November 30, 2010, at 9:59 PM, Mannyschotz wrote:

    If you think there will not be a mass exodus from AT&T with serious financial repercussions you are gravely out of touch with iPhone user sentiment. We hate AT&T, bitterly resent paying a premium for crap service and can't wait to tell them to shove it.

    I have no clue who this Anders Bylund clown is but this article is dim conjecture masquerading as financial analysis. Contradicting popular opinion - for its own sake - doesn't make you smart or right.

  • Report this Comment On December 01, 2010, at 12:10 PM, shellbell27 wrote:

    Mannyschotz,

    You will be sadly disappointed if you switch to Verizon for the iPhone! You will get a watered down version of what AT&T offers. You will NOT be able to do simultaneous voice and data. And contrary to what you think …AT&T has faster network speeds! Maybe you should do your research before you start spouting off!

  • Report this Comment On December 01, 2010, at 1:55 PM, baldheadeddork wrote:

    Great. All the disgruntled AT&T customers will go to Verizon and overwhelm their network and the whining can begin anew.

    If Verizon does get the iPhone (still a big if), I think the biggest loser is going to be Apple. Allowing only one carrier to have the iPhone gives Apple tremendous leverage on pricing and kickbacks, err, exclusive rights fees. Give Verizon the iPhone and AT&T won't give another dime to Apple and their promotion of Apple's brand will come to a quick halt, too. It also dilutes Apple's leverage in setting retail pricing for their products.

    This is a little off topic, but the possibility of a Verizon iPhone does fit in with Apple's other recent moves, like selling the iPhone through Wal Mart and allowing Marshall's/TJMaxx to sell iPad's at a deep discount on Black Friday. Three years ago this would have been unthinkable because of the damage it would do to Apple's image. It would be like Coach or Louis Vuitton selling at Wal Mart. Even if WMT's customers have the money, the image that comes with it is poison for the market and image that Apple has spent decades cultivating.

    Now it's like they don't seem to care. It's like they're trying to grab sales as quickly as they can, regardless of the long-term effects on their brand.

    The only rational reason to do this is if they've concluded that they've hit the saturation point with their target demographics and the only way they can continue to grow is to open their brand to the masses. They're not the first company to do this, but it rarely ends well. Brands built on exclusivity almost always lose their most passionate supporters when they go downmarket, and they quickly become just another commodity fighting against mass-market brands.

  • Report this Comment On December 03, 2010, at 9:41 PM, tntitantexan wrote:

    This guy is way off. It's obvious that Verizon is going to gain twice off this whole experience. First, the outrageous contract termination fees they've been charging people to jump ship to the iPhone and AT&T over the past 4 years. In that time they managed to build the most respected and reliable network while remaining the top provider the whole time. Meanwhile, now they have the brand, the network, and the massive pile of money to pour into hyping this over the next year.

    Meanwhile AT&T has been showing it's teeth a bit as well, pouring much of their advertising money into phones that feature Windows, and therein Microsoft, operating systems. This seems weak and forced though, unlikely partners if you will.

    Who wins in all of this? Apple has definitly managed their way admirably throughout this whole process while simultaneously propping up AT&T for the past 4 years.

    I think Microsoft and Windows are out of the smartphone business as far as the massive, attractive appeal goes. Clearly Android, iPhone, and Blackberry have established their territories in the smartphone realm, and Microsoft as an entity there seems dated.

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