AT&T and Verizon Square Off in the Battle of iPad 2 Plans

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AT&T ( T ) and Verizon ( VZ ) both have the iPad and are sparring over data customers. These two compete with Sprint ( S ), T-Moble and smaller carriers like Virgin in the mobile business. AT&T's other business lines include broadband, pay-TV, landline phone and business services. Our price estimate for AT&T stands at $35.80 , well ahead of market price, and we estimate that AT&T generates roughly 50% of its equity value from mobile phones and plans.

Given that the mobile phone penetration in the U.S. is already approaching saturation levels and will trend more or less with population growth in the future, incremental growth for telecom providers like AT&T will come from newer devices like tablets and other connected devices. We previously wrote an article about this titled Tablets Provide Upside for AT&T as Mobile Market Saturates .

The impact of these changes can be gauged by modifying the chart below.

This is where tablets can give these companies an edge. Goldman Sachs expects tablets to grow by 224% in 2011 compared to just 6% growth for the total PC market and expects tablets to cannibalize about 35% of notebook sales. In a report from last summer, Forrester predicted that it expects tablets to overtake desktop sales in the U.S. by 2015. Though this presents opportunity for companies like AT&T, it will have to fight off Verizon to truly capitalize on it.

Verizon and AT&T both carry the iPad and iPhone. The recently launched iPad 2 is stirring up fresh competition on which carriers customers will choose.

Stacking up the iPad 2 Plans

AT&T and Verizon are both offering tiered data plans that have some subtle differences. Both seem to have different data tiers and AT&T offers both pre-paid and post-paid plans while Verizon is only offering pre-paid. A brief look at the iPad 2 data plans suggest that Verizon is offering more tiers of pricing to accommodate different levels of usage. However, not all customers know what they want and how much data they will consume, especially if this is their first iPad or connected mobile device.

Below are some observations from the comparison:

  1. Consumers with very low data usage, especially those who would like to use iPad 2 for just light web surfing without any high media consumption like videos, are likely to go to AT&T
  2. Users that tend to reach around 1GB of monthly data usage will be better off at Verizon
  3. Consumers who tend to use monthly data of as much as between 1 GB and 3 GB will prefer AT&T
  4. Data usage of 3GB to 4GB leads to a neutral choice between the two carriers
  5. Anything higher than that, Verizon's plan is preferable

Ultimately it boils down to the question of how well can users predict their data usage.

Very heavy data users have an advantage with Verizon, but that does not mean that users will switch to AT&T automatically. AT&T is allowing its existing customers with unlimited plans to grandfather this data plan when they upgrade to iPad 2!

While is seems both plans have their positives, AT&T has an easier plan and will retain customers who are nervous to try something new and get upgraded to iPad 2 with the same plan.

You can see the complete $35.80 Trefis price estimate for AT&T's stock here.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: S , T , VZ

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