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Mobile Carriers Making The Most Of iPhone 7 Mania

Mobile Carriers Making The Most Of iPhone 7 Mania
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Mobile carriers, especially T-Mobile US Inc (NASDAQ: TMUS) and Sprint Corp (NYSE: S), are set to rake in big moolah from the launch of Apple Inc. (NASDAQ: AAPL) iPhone 7 amid aggressive promotions and unlimited plans that were rolled almost a month leading into the 7 launch.

Pre-orders for iPhone 7 and 7 Plus at T-Mobile and Sprint were up four times versus last year's launch.

Both carriers have reformed traditional unlimited plans with T-Mobile launching T-Mobile ONE and Sprint unveiling Unlimited Freedom.

"We believe T-Mobile and Sprint subs are more likely to jump to the 7, given their EIP/leasing mix and upgrade-friendly offerings: 1) ~64 percent of Sprint subs are on unsubsidized plans and the iPhone Forever promo has been a hit since its Aug. '15 launch; and 2) T-Mobile has one of the oldest EIP bases and ~42 percent of its postpaid subs are on JUMP! On Demand," Macquarie analyst Amy Yong wrote in a note.

Related Link: Pre-Orders Suggest Apple's iPhone 7 May Exceed The Street's Low Expectations

Industry heavyweights Verizon Communications Inc. (NYSE: VZ) and AT&T Inc. (NYSE: T) have also announced new promotions for the iPhone. These giants are focusing on customer retention and higher-ROI customers.

These bode well for the quarterly results of the carriers. Yong sees third quarter postpaid phone net add/churn assumptions for Sprint and T-Mobile of 177k/1.43 percent and 706k/1.42 percent.

"Share gains come at the expense of AT&T and Verizon for which our retail postpaid net add/churn numbers go to: 119k/1.23 percent and 858k/0.97 percent," Yong highlighted.

Meanwhile, the analyst expects Sprint to report higher porting ratio after T-Mobile disclosed sequentially higher porting ratios for its third quarter.

With the 7 launch running largely as expected, the analyst expects upgrade rates across the industry will hover around 9 percent in the fourth quarter. Verizon, AT&T, T-Mobile and Sprint ended second quarter with upgrade rates at 5.4 percent, 4.6 percent, 6 percent and 5.4 percent, respectively.

"Heading into next year's iPhone launch, we expect to see a bump in sales YoY as 'S' versions tend to sell better (~13m 6s/6s Plus units sold on opening weekend vs ~10m 6/6 Plus). We expect average industry churn to pick up ~6bps to 1.28 percent in 3Q and another ~3bps to 1.31 percent in 4Qas 2H is traditionally seasonally higher," Yong continued.

That said, Yong noted that the additional marketing spend and subsidies to pressure industry margins by 10–15bps as the trade-in promos resemble legacy subsidy plans where carriers realized a $150–$200 loss on a $650 device.

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