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Verizon May Sell 2 Million IPhones in Bid to Lure AT&T Users

Verizon May Sell 2 Million IPhones
Apple Inc. iPhone 4's for the Verizon, right, and AT&T networks are arranged for a photograph in Draper, Utah. Photographer: George Frey/Bloomberg

Verizon Wireless, the wireless carrier whose stores began offering the iPhone today, may sell 2 million or more of the devices this quarter and draw subscribers from AT&T Inc., analysts said.

Verizon, which is ending Dallas-based AT&T’s monopoly on the Apple Inc. phone in the U.S., started sales at 7 a.m. New York time. While online sales to existing Verizon users Feb. 3 ended within hours as the company exhausted its stock, there were few lines at stores that began selling the device today.

The carrier gaining the iPhone will intensify competition in the U.S. smartphone market and curb customer growth at AT&T, said Craig Moffett, a Sanford C. Bernstein & Co. analyst in New York. The threat of losing users may encourage AT&T to increase subsidies on its devices, which would force other carriers to match the lower prices, benefiting consumers, he said.

“It’s unrealistic to think that AT&T is simply going to watch as their subscriber growth falls off the table,” said Moffett, who rates Verizon “underperform.” “They will obviously try to present a more compelling lineup of Android phones and Windows 7 phones of their own, but the main event will be what they do with pricing.”

Verizon may sell 2 million iPhones this quarter, according to Rick Franklin, an analyst at Edward Jones & Co., Jennifer Fritzsche at Wells Fargo Securities LLC and Ashok Kumar at Rodman & Renshaw LLC. Sales in the first week may top 1 million units, said Mike Abramsky of RBC Capital Markets LLC. The device went on sale to all customers online on Feb. 9.

Empty Stores

Stores with the new iPhone opened today without the crowds that in some cases camped out all night for the release of previous models. Shortly after Apple’s flagship New York store on Fifth Avenue in Manhattan opened, there were about four times as many employees as customers in the store.

“I’m not sure you’ll get the same type of frenetic, crazy reaction. It’s not like it’s a brand new device being offered,” said Michael Nelson, an analyst at Mizuho Securities USA Inc. in New York who rates Verizon shares “outperform” and doesn’t own any. “I think that the largest appeal is to existing customers.”

Lines at stores were shorter than expected, which suggests that Apple and Verizon incorrectly estimated the mix of online orders and in-store purchases, said Gene Munster, an analyst at Piper Jaffray Cos. in Minneapolis. He kept his estimate of 1.5 million Verizon iPhones sold this quarter.

Brisk Online Sales

Verizon Communications Inc., the New York-based company that co-owns Verizon Wireless with Vodafone Group Plc, lost 26 cents to $36.42 in New York Stock Exchange composite trading at 4 p.m. AT&T rose 27 cents at $28.24. Apple, based in Cupertino, California, fell $3.62 to $354.54 on the Nasdaq Stock Market.

At opening time at a Verizon store in Oakland, California, there were about 10 shoppers in line. Kimberly Ramsey, 27, had lined up at 6 a.m. to switch from a BlackBerry Storm by Research In Motion Ltd. She said she hadn’t bought an iPhone through AT&T because of poor reception in San Francisco, where she works as a security supervisor.

“I’ve been waiting years,” Ramsey said. “First I’m going to set up my e-mail and then set up social-networking apps to advertise I got the iPhone.”

Verizon sold more than 500,000 iPhones to current customers through online preorders, estimates Philip Cusick, an analyst at JPMorgan Chase & Co. On Feb. 3, the carrier said it sold more iPhone 4s in two hours than any other Verizon product had sold in its first day. Verizon stopped accepting orders because of the demand.

A 16-gigabyte iPhone 4 costs $199.99 at Verizon and a 32-gigabyte version $299.99, matching the prices at AT&T.

‘New Front’

Verizon will sell 9 million iPhones or more this year, Abramsky predicts. Verizon said last month 2011 sales and profit may jump as much as 8 percent if it sells 11 million iPhones. AT&T, which had exclusive rights for the device since its 2007 release, activated more than 15 million iPhones last year.

The iPhone is Apple’s top-selling product, accounting for 39 percent of its revenue in the first quarter, more than Macintosh computers and iPads combined.

Adding Verizon allows Apple to roughly double the number of customers it can reach in the U.S. Apple is facing increased competition from Samsung Electronics Co., HTC Corp. and Motorola Mobility Holdings Inc., whose smartphones run Google Inc.’s Android operating system.

Android phones accounted for 28.7 percent of U.S. smartphones in the U.S. in the quarter ended in December, compared with 25 percent for Apple, according to ComScore Inc.

“They are opening up a new front in the cellular phone wars,” said Michael Yoshikami, chief investment strategist at YCMNet Advisors in Walnut Creek, California, which owns Apple shares.

International Expansion?

The new iPhone, based on CDMA technology, may let Apple expand in international markets where that standard is used, said Brian Marshall, an analyst at Gleacher & Co. in San Francisco. CDMA carriers include Japan’s KDDI Corp. and Beijing-based China Telecom Corp., he said.

The Verizon iPhone is different than the original iPhone 4 released in July, according to an analysis of its components by IFixit. One change is to the antenna design, according to IFixit. The design of the antenna was criticized last year because calls were dropped if the phone was held a certain way.

“Apple is really focused on being a wireless mobile company more than a computer company,” Yoshikami said. “The Verizon iPhone is just one step towards that.”

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