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The big news today is Apple’s (NASDAQ:AAPL) iPhone 5 release, but the country’s top wireless carriers are all in the bag as well. There is speculation that this weekend’s mad dash may actually hurt telecom giants Verizon Wireless (NYSE:VZ), Sprint Nextel (NYSE:S), and AT&T (NYSE:T) in the short run. It’s no secret that carriers pay subsidies in order to land service contracts, but the cost is staggering.
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Retail outlets for wireless carriers across the country put out their iPhone 5 signs for the phone’s release. None of the major carriers have given out sales figures yet, but Apple already smashed its previous pre-order record with 2 million units sold in 24 hours. Piper Jaffray analyst Gene Munster thinks the iPhone 5 may sell as many as 10 million units by September 23, and stores are already selling out.
In anticipation of the subsidy costs associated with these sales, Stifel Nicolaus analyst Christopher King downgraded both AT&T and Verizon. He wrote in a note, “Give our assumption of approximately $425 in carrier subsidies per handset, we believe the U.S. carrier market could be on the hook for more than $10 billion over the last three and a half months of the year alone, entirely due to the new iPhone launch.” Of that $10 billion, $4.1 billion would be from between September 21 and September 23 if sales estimates hold true.
Operators will compensate for this blow in the coming months as they collect service payments. Faster network speeds mean more data use, and more data use means more dollars for carriers as the age of unlimited data comes to a close. The new iPhone is the first in the series to support 4G LTE, and Verizon has aggressively expanded its network in preparation. Other carriers have been expanding their LTE networks as well, but Verizon could see a disproportional bump because of its coverage.
A barrage of new phones were announced in September and 4G LTE is gearing up to become the network of choice. As the production costs increase alongside the complexity of phones, subsidies are bound to go up as well. Look for a massive hit to wireless operator bank accounts on hot phone release dates, and a subsequent surge in data payments.
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