) competes primarily with Verizon (
) and Sprint (
) in the mobile phone business. The company has had a great ride
with Apple's (
) iPhone on its side. However, as the exclusivity nears a probable
end, AT&T is looking towards newer ways to market itself and
reduce its dependence on the iPhone.
Our price estimate for AT&T is $37.84
, implying about 30% upside to market price. We estimate that 45%
of this stock value is generated by the company's mobile phones and
Here we examine the outlook for AT&T in the wake of an
impending Verizon iPhone launch.
iPhone Price Cut
From Jan 7, 2011 onwards, AT&T will be cutting the price of
its iPhone 3GS model from $99 to $49. Part of this comes from its
attempt to clear remaining inventory as consumers increasingly
adopt the iPhone 4 (and iPhone 5, which might be released later
this year). AT&T might also be trying to engineer one more push
to lock in new contract commitments as the probable end of iPhone
To enact this type of price reduction, AT&T must eat the
cost difference, meaning higher phone subsidies for customers and
lower gross margins for AT&T. While the margin impact from
iPhone 3GS discounting is unlikely to be material (given that this
model is no longer the prime driver of new unit sales), AT&T's
stock value could be pressured if this discounting strategy is
ultimately expanded to newer models as a means of maintaining
Android to the Rescue
AT&T's smartphone strategy for 2011 is heavily influenced by
the probable loss of iPhone exclusivity. Fittingly, the company
recently announced during the 2011 Consumer Electronics Show that
it will be emphasizing Android-based smartphones.
Can this move sustain AT&T's market share gains?
The Android OS has been gaining market share rapidly in recent
quarters, according to data from tech research firm Gartner. In the
second quarter of 2010, worldwide sales of Android-based phones
surged to 10.6 million, up from just 755,000 in the year-ago
quarter. Android-based phones accounted for nearly 18% of worldwide
smartphone sales in the second quarter of 2010, up from about 2% in
the second quarter of 2009.
Emphasis on Android can help AT&T maintain recent market
share momentum despite losing its hold on the iPhone.
4G Marketing Gimmick
While AT&T has lagged behind some competitors in launching a
4G network (which is primarily LTE), the company is looking to
resort to a new marketing technique by labeling its HSPA+ upgrade
as 4G. The company states that the speed difference between HSPA+
and LTE will be not noticeable until richer applications come out,
thus justifying the 4G label. Still, the decision appears to be a
marketing gimmick in the wake of competitive pressures.
With the likely launch of a Verizon iPhone fast approaching,
AT&T seems to be positioning itself for life after iPhone
exclusivity. New marketing strategies and an emphasis on
Android-based phones can strengthen the company's mobile phone
operations, but it remains to be seen whether this will be enough
to offset the coming storm.
Let us know your thoughts on AT&T's outlook by providing
feedback in the comment box below.
You can see the impact of various mobile phone profit margin
and market share scenarios on AT&T's stock value by dragging
the trend lines in the modifiable charts above.
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You can see
the complete $37.84 Trefis price estimate for
AT&T's stock here.