iPhone 5 and the Carrier Wars
Douglas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As the much anticipated release of Apple’s (NASDAQ: AAPL) iPhone 5 approaches – speculation has the release date set at Sept. 21, although no real information is available – the ramifications for the major wireless carriers is as important a discussion as how the device will be received.
If one accepts, for the sake of argument, that the iPhone 5 will carry the appeal of its predecessors, the relative positioning between AT&T (NYSE: T), Verizon Communications (NYSE: VZ) and Sprint Nextel (NYSE: S) is where the real action will take place. Each of these wireless providers offer certain advantages over their competitors and the choices consumers make on this level will have a significant impact of all three stock prices.
Each of the big three wireless providers carries the iPhone through its respective network, offering advantages that its competitors do not. A closer look at each name individually should help to flesh these out and serve as the basis for making investment decisions.
AT&T – While there was at least one story that suggested the iPhone 5 might be offered exclusively through AT&T before its competitors, it is hard to believe that Apple would make such a disastrously stupid decision. In the absence of this type of development, the biggest advantage offered by AT&T is the ability of iPhone users to access the web while on the phone. This exclusivity may disappear with the next generation of iPhone, making AT&T arguably the weakest positioned. As a matter of investing, AT&T has done a much better job at customer retention than its competitors, so barring a compelling reason to leave, the company may be safe.
Verizon – Having just mentioned the compelling reason AT&T customers might need to leave, the comparative strength of Verizon’s LTE network may be it. It is hard to image that after going an entire year without providing a 4G LTE solution this would not be a feature of the iPhone 5 (if it is not, this decision is as disastrously stupid as would be giving AT&T exclusivity). Assuming it is included in the new release, the vast superiority of Verizon’s network may become a factor. Presently, Verizon’s robust LTE network reaches 230 million, with another 260 million expected to be added by year-end. AT&T’s network is only available to 80 million.
Sprint – Unlike its competitors, Sprint has chosen to compete on data cost, offering an unlimited data plan. While the vast majority of users do not come anywhere near hitting the data limits set by AT&T and Verizon, the offer itself is appealing. It is difficult to predict how data usage needs will develop over time, and many individuals favor the option. For those rare individuals whose data usage is such that the unlimited plan offers significant cost savings, Sprint is the obvious choice. On this topic, Sprint has found a solid avenue on which to compete with the other two, more established iPhone purveyors.
Given the relative positioning of the three companies, the trading calls appear mixed. Given the weakness of its network, AT&T is a sell, if not a short, going into the release. Verizon looks to be the strongest of the three, and with the potential to steal valuable market share from AT&T, the stock is a buy at current levels. The picture for Sprint is far less clear, yielding a neutral recommendation as things shake out and the first wave of sales figures is released. The specific functionality of the iPhone 5 will likely have an impact on each of these players and their relative positions, but based on currently available information, the above recommendations should leave one well positioned.
Mr.Ehrman has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple. 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. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.