iPhone 5 Rumors Could Hurt Apple, but Benefit Verizon, ATandT

NEWS ANALYSIS: Verizon Wireless and AT&T posted surprisingly strong second-quarter earnings, given that rumors of an upcoming iPhone 5 likely delayed some iPhone sales. While those missed sales hurt Apple, they seem to have benefited the carriers.

Smartphone and tablet usage is up, Americans are burning through more data than ever and the wireless carriers, which have invested billions of dollars to get to this point, are beginning to enjoy the results.

They€™re also enjoying what the Apple iPhone has helped to create, even in absentia.

AT&T this quarter announced its €œbest-ever wireless margins,€ a $1 billion wireless data revenue increase from a year ago, and sales of 5.1 million smartphones. Wireless service revenues increased 4.3 percent, to $14.8 billion, and its postpaid ARPU€”or, average revenue per user€”grew to $64.93.

Verizon Wireless€™ wireless service revenues increased 7.3 percent year-over-year, to $15.8 billion. It sold 5.9 million smartphones during the quarter, 3.2 million LTE devices, and raised its ARPU to a three-year high of $56.13.

Even the long-struggling Sprint, while posting a net operating loss of $629 million, largely related to its closure of the Nextel iDEN network, grew its net operating revenues to $8.8 billion from $8.3 billion a year ago, and noted that the improvement was €œprimarily due to higher wireless service revenues.€ It also increased its ARPU by $4.31€”the largest such year-over-year increase on record for the U.S. wireless industry.

Further encouraging data use, in recent weeks Verizon Wireless and AT&T each announced plans in which multiple devices can draw from a single data allotment, making it more likely for users to purchase or activate 3G- and 4G-enabled tablets, instead of relying on WiFi or delaying a tablet purchase.

Also working to the benefit of the carriers during the quarter were rumors of the upcoming iPhone 5. While Apple partly attributed these rumors€”which presumably caused consumers to delay new iPhone purchases€”to a fiscal performance that broke records but nonetheless came in under Wall Street€™s expectations€”the dip in iPhone sales had the opposite effect on the carriers. With fewer iPhones sold, they paid out fewer subsidies, leaving them with more dollars.

€œMobile operators have really been focusing on developing more diversified device portfolios, and are trying to make sure that they€™re not too dependent on any single vendor€™s products, particularly the iPhone,€ Ken Hyers, a senior analyst with Technology Business Research (TBR), told eWEEK.

€œI think the results from this past quarter show that they are succeeding, as more consumers look beyond the iPhone to other smartphones,€ Hyers continued. €œComscore today reported that 62 percent of first-time smartphone buyers chose an Android device. I see this trend holding, as consumers look for easy-to-use smartphones that often come with significant discounts from operators. Android devices are quite appealing to operators because even when they are heavily subsidized, the cost to operators is still less than the cost to an operator of a subsidized iPhone.€

Pund-IT principal analyst Charles King, while unconvinced that iPhone 5 expectations explain away the €œdent€ in Apple€™s sales, agrees that the carriers have moved past the days when the iPhone could make or break a quarter for the carriers.

€œWhereas the tablet market is mostly about the iPad just now, Apple is just one more player in smartphones,€ King told eWEEK. €œPlus, the market for those devices seems to be growing much faster than even the most optimistic expectations for the iPhone 5. Bottom line€”the global demand for powerful smartphones is acting like a classic €˜rising tide€™ that benefits most every wireless vendor and [service provider].€

TBR€™s Hyers believes the carriers will later this year put significant marketing resources into the Microsoft-running Nokia Lumia line, so great is their desire for a third platform and brands beyond the iPhone.

That said, he added, €œI€™m sure that all of the operators are looking forward to the iPhone 5 and the huge spike in sales that will inevitably result when it comes out.€

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