Market Overview

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

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

Wells Fargo believes the volumes of the wireless carriers to remain elevated in the fourth quarter compared to the previous year, as the Big 4 recklessly promote the new Apple Inc. (NASDAQ: AAPL) iPhone 7. However, volume gains would come at the expense of margin and equipment revenues, according to the firm.

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.

Related Link: Samsung Offsetting Recall Costs By Selling Stakes In Other Tech Companies

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 (NASDAQ: TMUS) and Sprint Corp (NYSE: 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. (NYSE: T) and Verizon Communications Inc. (NYSE: 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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Posted-In: Jennifer Fritzsche Wells FargoAnalyst Color News Analyst Ratings Movers Tech Best of Benzinga


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