Verizon Investors Should Be Cautious on iPhone Announcement


Verizon ( VZ ) primarily competes with major operators like AT&T ( T ) and Sprint ( S ) in the mobile business. Based on size and scale, Verizon's most direct competitor is AT&T. Despite a push from AT&T over the past 3+ years, as the exclusive carrier of Apple's ( AAPL ) iPhone, Verizon has been able to thrive on sales of Research in Motion's ( RIMM ) Blackberry smartphone, as well as Google (GOOG) Android-based phones.

Our price estimate for Verizon stands at $31.69 , which is about 10% below the market price.

Verizon is now officially getting the iPhone, following months of rumors. While many believe this to be icing on the cake for the carrier's ongoing success in smartphones, it could actually prove to be a double-edged sword. Verizon will offer an unlimited data plan for the iPhone, an option no longer available through AT&T. While this plan will command a premium from subscribers, it could trigger heavy data usage and pose problems for Verizon's network (although Verizon has dismissed these concerns).

Network Congestion a Concern?

Verizon's unlimited plan could be a differentiating factor that lures additional iPhone customers away from AT&T. While most users may not opt for the unlimited data plan, the unlimited data subscribers could still see substantial data usage, causing network congestion. AT&T has already faced these issues in the past, and it now appears that Verizon will be tested.

It's Not Just the iPhone

Verizon has been increasingly shifting its dependence from Blackberry to Android-based phones, as we've previously discussed ( Verizon - increasing Android Mix Can Accelerate Subscription Revenue Growth ). According to a study conducted by telecom network technology firm Arieso,  subscribers using Android-based smartphones are adding more data traffic than users of any other smartphone, primarily due to more advanced cameras and video recorders in addition to software that permits users to edit video footage. While the continuing shift to Android will already strain Verizon's network, the addition of an unlimited iPhone plan could magnify this affect.

If this happens, Verizon's brand image and reputation for best-in-class service could suffer. Any such affect would likely hinder the company's ability to continue market share gains. While we currently project a gradual increase in Verizon's market share over the coming years, network congestion concerns could provide downside to our forecasts and stock price estimate. We note that our price estimate already stands about 10% below market price, so any further concerns should not be welcome news to investors.

Do you think Verizon can handle the expected jump in data traffic, or at least mitigate its impact with migration to LTE? Let us know your thoughts by providing feedback in the comment box below. You can also drag the trend line in the modifiable chart above to see the impact of various market share scenarios on Verizon's stock value.

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You can see the complete $31.69 Trefis price estimate for Verizon'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: AAPL , RIMM , S , T , VZ



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