VZ: 'LTE' iPhone Could Be 'Game Changer,' Says Jefferies - Barron's (blog)

By Tiernan Ray

Jefferies & Co.’s telecom analyst Thomas Seitz today reiterates a Buy rating on shares of Verizon Communications (VZ), and a Hold on AT&T (T) and a Sell on Sprint-Nextel (S), writing that if Apple‘s (AAPL) next iPhone model comes with a wireless modem that uses the “long term evolution,” or LTE, standard for 4G wireless broadband, it will “change everything” and give Verizon an edge over AT&T and Sprint.

Apple is the last phone maker to incorporate LTE in its models, the other smartphone makers having shipped LTE-enabled handsets for some time now.

Seitz is expecting the next iPhone to be introduced on September 12th and be available for pre-order that same day, and to formally go on sale the 21st, drawing upon various rumors to that affect over the past few weeks.

He expects the phone may sell as many as a five million units before September ends, and another 15 million in December quarter, and that it will be “the biggest consumer product launch ever.”

But Seitz’s main interest is in the fact that Verizon has much broader LTE coverage throughout the U.S. currently. AT&T trails it, and at just 30 million “POPs” covered, Sprint is woefully behind the other two, he writes:

The carriers are at different stages of their LTE deployments, likely creating winners and losers when the LTE capable iPhone launches, in our view. As of the end of 2Q12, Verizon’s LTE network covered 230 million POPs, more than all the other carriers in the US combined. We believe this network advantage could lead to a share shift towards Verizon, primarily at AT&T’s expense â€" which we estimate could see its market share of iPhone sales decline modestly to 45% in 3Q12 from 47% in 2Q12. AT&T has two other factors going against it in 2H12. First, the company sold (and consequently locked in) 9 million iPhones in 3Q10 and 4Q10, and many of these customers will be coming off contract. Second, AT&T raised its prices when it introduced shared data plans. Though its customers still have a choice to stay with the traditional plans, those who can move to the shared data plans may find that AT&T’s price advantage vis-a-vis Verizon has shrunk. On the other hand, perhaps AT&T believes it no longer has to be less expensive.

Seitz sees Deutsche Telekom’s T-Mobile as a “wildcard.” It’s unclear if they’ll get the next iPhone, but if they do, it would most likely pressure Sprint, he thinks:

T-Mobile remains a wild card. We believe T-Mobile remains the wild card. In our analysis we are assuming that T-Mobile will not get the iPhone, since there has been no credible news to indicate otherwise. However, if T-Mobile USA were to get the new iPhone, in our view the company is likely to see its postpaid net loss moderate significantly. In this scenario, we believe Sprint could be the biggest loser. Currently, Sprint is the only low cost carrier selling the iPhone. If T-Mobile were to get the iPhone, we believe Sprint will face competition for iPhone subscribers at the low end of the postpaid market. In our view, AT&T and Verizon could lose some subscribers to T-Mobile, however the magnitude may be small for both carriers.

Seitz has a $50 price target on VZ shares, a $38 target on AT&T stock, and a $3 price target on Sprint shares.

Verizon today is down 34 cent,s or 0.8%, at $42.75, AT&T is off 13 cents at $36.69, and Sprint is up 2 cents, or 0.4%, at $4.88.