Barclays Capital reiterated its ‘overweight’ rating on iPhone maker Apple Inc. with a price target of $340.
Subscribers to Verizon will soon be able to be iPhone users, as Apple is expected to launch its phone on a second network, media reports said.
After keeping iPhone an AT&T-exclusive phone for more than three years, Apple is reportedly planning to launch the iPhone 4 for Verizon Wireless, the largest wireless carrier in the United States, as competition with other smartphones gets more intense.
If the phone becomes available on two networks, analysts believe it could result in a significant loss of revenue for AT&T, whose subscribers will have an alternative to its network. AT&T has been the target of complaints for dropped calls and slow internet speeds.
The rise in the number of smart phones in the market, particularly the popularity of the iPhone, has made it harder for networks such as AT&T's to bear the load.
iPhones account for about 14 percent of AT&T's total annual revenue, Moody's Investor Service said in a note. "AT&T's loss will be Verizon Communications', and possibly Sprint Nextel Corporation's, gain, depending on the terms of Apple's contract with Verizon," Moody's said.
The agency estimates that the loss of the exclusive contract translates to a loss of about 2 million iPhone customers in 2011,or about $2 billion in revenues annually. That includes contract terminations and customer churn.
Though $2 billion revenue is small compared to its annual revenue of about $123 billion, other expenses such as its dividend payouts, the need to devote capital to 4G/LTE network upgrades in 2011 and the slowdown in its wireline business would result in the "reduced flexibility of the company as it strives to maintain its debt-to-EBITDA multiple target," Moody's said.
The agency expects AT&T's net cash generation to be further stressed if the company resumes its stock buybacks.
The use of CDMA technology on Verizon's phones could cause some hiccups initially. AT&T currently uses a GSM network, which is the most common type in the world. If the iPhone is rolled out with the current CDMA technology on Verizon's network, it could cause problems as people cannot use simultaneous data and voice transfers as they can on the GSM.
Verizon will benefit from the iPhone as the CDMA technology in the new iPhone will be specific to the company, Moody's said.
None of the companies involved have officially mentioned the iPhone on other networks. But even with its drawbacks, the iPhone on two networks would help ease some stress on the AT&T network.
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