iPhone News Updated

Apple’s iPhone: ‘A Curse’ for AT&T?

Apple’s iPhone: ‘A Curse’ for AT&T?

Nomura launched coverage of the telecom universe Monday evening, slapping a “buy” rating on AT&T over Verizon and Sprint-Nextel, citing what they called “overly pessimistic” sentiment on the company, which has “significant cash generation, a healthy and meaningful dividend and the likelihood of a large share repurchase announcement in the near term.”

And while the expected announcement of a Verizon iPhone will likely mean Verizon will take share, the end of iPhone exclusivity AT&T might not be all bad for Ma Bell.

In subsection of the research note entitled “iPhone – a Blessing . . . and a Curse,” Nomura analyst Mike McCormack writes:

Although the cost of the iPhone has been significant for AT&T and the subscriber base is at risk in a non-exclusive world, we believe the phone has had a positive impact on not only subscriber gains, but also churn and ARPU. We anticipate that, absent AT&T engaging in aggressive marketing post-exclusivity, margins will begin to more meaningfully benefit from the higher-ARPU, lower-churn base in 2011. Given that AT&T has 80% of postpaid subscribers using integrated devices versus 23% at Verizon, we see the potential for AT&T to reach or exceed its goal of mid-40% wireless margins in 2011.

Translation: AT&T had to fork over fat subsidies as part of its exclusivity agreement with Jobs & Co. That’s been a weight on margins. Of course there have also been giant benefits, including cutting down on the turnover in customers and boosting the average revenue per user [ARPU] as customers have been paying more for data plans so they could access all the doodads and whistles available in iPhoneland.

Those higher prices might help keep margins fat going forward. One caveat however, is if AT&T and Verizon choose to engage in a price battle for share over iPhone users by boosting subsidies they pay for the phones, “which would impact the bull case of rapidly expanding margins in a lower gross-add environment.”

[Thanks: http://blogs.wsj.com]

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