IPhone’s Earlier Sales Debut Will Hurt Carrier Q3 Profit

Apple Inc.’s (AAPL) Sept. 21 release date for the iPhone, earlier than last year’s debut, means U.S. carriers will have to pay millions of dollars in subsidies in the third quarter, hurting their bottom lines.

The earlier timetable is prompting analysts to lower quarterly profit projections for Verizon (VZ) Communications Inc. and AT&T Inc. (T), the two biggest U.S. carriers. The companies cover most of the cost of the device, bringing its $600-plus price tag down to $199, in exchange for two-year contracts.

Chris King, an analyst at Stifel Nicolaus & Co., downgraded Verizon and AT&T to hold from buy today and reduced his third- quarter margin estimate for both carriers by about a percentage point. Will Power at Robert W. Baird & Co. lowered his third- quarter earnings estimate by 7 cents to 60 cents a share for the companies. Craig Moffett at Sanford C. Bernstein also cut his third-quarter margin estimates for both carriers.

“The iPhone is a double-edged sword for the carriers,” Moffett said today in his report. While the iPhone helps fuel customers’ use of data, leading to higher phone bills, the upfront costs create short-term pain, he said. Moffett said he had originally assumed the iPhone would go on sale in the fourth quarter.

Another potential drawback to the iPhone popularity is higher customer turnover, Moffett said. All three of the major U.S. carriers, including Sprint Nextel Corp. (S), now offer the iPhone. The release may spur customers to move from one carrier to another, increasing the rate of churn for the companies.

Shares of New York-based Verizon Communications, the co- owner of Verizon Wireless, fell 2.3 percent to $45.53. AT&T, based in Dallas, also fell 2.3 percent, to $37.26.

All three carriers started taking pre-orders for the iPhone today, with plans to ship the product between Sept. 21 and Sept. 28, according to the companies’ websites.

To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net

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