As the dust settles around the announcement of Apple's 5G-capable iPhone, AT&T has emerged as the operator offering the biggest promotion for the gadget.
Indeed, one analyst calculated that AT&T's estimated $800 subsidy for the device is the largest promotion ever offered for an iPhone on its introduction.
Of course, how exactly the critical fourth quarter shopping season plays out – and how customers react to AT&T's promotion and Apple's new wares – remains to be seen. But the fact that AT&T feels the need to go big on the 5G iPhone may reflect the operator's concerns over its increasingly tenuous position in the wireless market relative to its rivals, T-Mobile and Verizon.
Promotions for mathematicians
First, let's look at the details of AT&T's 5G iPhone promotion. "New and existing customers can now get the iPhone 12 for $0 when they buy on a qualifying installment plan with an eligible unlimited plan," the operator writes in a release.
Seems simple enough. But what about the fine print? "Req's trade in of eligible device, $799.99 on 0% APR 30-mo. agmt. $0 down for well-qual. customers only. $0 after credits over 30 mos. No credits for optional $5/mo. Next Up upgrade feature. If svc cancelled, device balance due. If svc. on other lines cancelled w/in 90 days credits stop. $30 Activation and other terms apply," the operator explains.
See? Clear as mud.
Thankfully, for those of us who didn't pursue a PhD in calculus, the financial analysts at LightShed Partners help explain things: "AT&T is offering an $800 subsidy to existing customers for trade-ins valued as little as $95. That is the largest promotion we have ever seen on an iPhone launch day, topping the $650 offers by all carriers back in 2016 and topping the $700 that Verizon offered to new subscribers last year," they wrote.
- AT&T is offering the iPhone 12 for free to new and existing customers via the trade-in of an iPhone 8 or better. This works out to a discount of $575.
- Verizon is offering a maximum discount of around $90 to existing customers and $200 for new customers alongside a $250 gift card for new customers. This puts Verizon's iPhone 12 promotion for new customers at a total of $450.
- T-Mobile, meantime, is offering promotions roughly comparable to those from Verizon: New customers can get a discount of around $450 for the iPhone 12.
Dragging at earnings
So why is AT&T going so big with the iPhone? "AT&T's goal is clear. Hold onto and perhaps even grow your wireless subscribers ahead of T-Mobile's differentiated 2.5GHz deployment and Verizon's 5G marketing push," write the LightShed analysts.
But the financial analysts at MoffettNathanson warned that AT&T's offer could portend "a preemptive race to the bottom" among US wireless network operators – a financially worrisome prospect.
And the LightShed analysts noted that operators suffered financially the last time they engaged in promotional wars, in 2016, when all the big operators matched T-Mobile's initial $650 trade-in offer. "Cash EBITDA [earnings before interest, taxes, depreciation, and amortization] and ultimately the free cash flow that funds the dividend will likely take a hit this year and next from this promotion," the LightShed analysts wrote of AT&T's new iPhone promotion.
AT&T's 5G future
Although AT&T is showing aggressiveness in promotions for Apple's first 5G iPhone, some analysts are beginning to worry that the company won't have the financial resources to keep up with Verizon and T-Mobile in the longterm race to acquire more spectrum for 5G.
"AT&T needs more midband spectrum to keep pace in 5G with T-Mobile and Verizon," argued the MoffettNathanson analysts. "We won't go as far to say that AT&T can't meaningfully participate in the C-band [spectrum] auction given the state of their balance sheet, but, well… it will be hard if they can't find something to sell. In fact, it will be hard even if they can find something to sell. It simply isn't clear where AT&T will find the borrowing capacity to buy a competitive-sized block of spectrum."
Interestingly, on the same day that the MoffettNathanson analysts fretted over AT&T's financial position, the company announced it scored $1.1 billion via the sale of its stake in Central European Media Enterprises Ltd. (CME).
According to the financial analysts at New Street Research, this fresh cash could help AT&T get closer to the $12 billion they expect the carrier to spend on C-band spectrum for 5G, in an auction scheduled to start in December.
"To get to our 'base case' of $12 billion, AT&T will either need to monetize an additional $6 billion in assets or else delay its de-leveraging target beyond 2022," the New Street analysts wrote. AT&T is reportedly also considering the sale of its DirecTV business.
At stake is nothing less than AT&T's ultimate 5G future.
"We have argued that the more spectrum a carrier wins, the better," wrote the New Street analysts. "We believe the spectrum will sell for less than intrinsic value because of the large amount of supply and limited balance sheet resources. We believe further that distribution of revenue across the carriers will migrate towards the distribution of spectrum over time (revenue share will match spectrum share)."
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