Carriers Willing To Face Revenue Pressures From iPhone Promos In Order To Chase Market Share

Jennifer Fritzsche, a senior analyst at Wells Fargo, noted that the Big 4 are offering free iPhone 7 for an eligible trade-in. This would leave their margin anemic, as instead of booking $650 in equipment revenue for an iPhone 7, these companies have to be contend with recording equipment revenue equal to the fair value of the trade-in, plus any other amount due.

The analyst equates the scenario to a subsidy scheme, with the carriers standing to lose $300–$400 on each phone sold. According to the analyst, although the working capital drag may be lower for a trade-in customer versus a new EIP customer, over the life of the EIP agreement, total cash flows are likely to be lower.

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Wells Fargo sees cut-throat competition, and this along with a huge base of upgrade-eligible customers will likely lead to higher churns across the carriers in the fourth quarter.

Wells Fargo believes T-Mobile US Inc TMUS and Sprint Corp S are likely to take some market share from the bigger players, given the latter's existing iPhone bases and less competitively-priced service plans. That said, the firm is also of the view that the Big 2, namely AT&T Inc. T and Verizon Communications Inc. VZ may not cede too much ground as they too have free iPhone 7 offers.

At Time Of Writing ...

• Apple was seen trading at $113.71 down 1.05 on the day.
• AT&T was down 0.44 percent at $40.03.
• Sprint was up 0.15 percent at $6.66.
• T-Mobile was trading at $45.99, down 1.20 percent.
• Verizon was down 1.39 percent at $51.16.

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