iPhone 5 spurs LTE launches, but subsidies will bite hard

As pre-orders for the iPhone 5 mount up, a bumper quarter is predictably on the cards for Apple. That will benefit the whole segment not just because of the Apple shipments themselves, but because the launch will be the tipping point for some carriers to kick off their LTE roll-outs; as well as for rivals like Samsung to step up their own marketing campaigns.

All that spells welcome Q4 revival for components makers, advertising agencies and apps suppliers, but one group which will see mixed results from the product are the operators. In the short term at least, the Apple device comes with heavy subsidy bills and the knock-on effect on profits.

On Friday, analysts at Stifel Nicolaus downgraded AT&T and Verizon because of this issue. Christopher King wrote in his downgrade note for clients that there were fears that the two carriers were overvalued and would see lower margins because of the likely success of the iPhone 5. In particular, since the handset would go on sale earlier than expected, during the third quarter, it would impact profits for the whole second half of the year.

In an earlier client note he had written: "Given our assumption of approximately $425 in carrier subsidies per handset, we believe the US carrier market could be on the hook for more than $10bn over the last three and a half months of the year alone, entirely due to the new iPhone launch."

Perhaps in response to this factor, but also because of the scale of pre-orders, the two main US cellcos pushed back shipment dates to September 28, while those ordering in advance on line must wait 14-21 days for delivery.

In other parts of the world, some operators (those with the right LTE frequency bands, at least) are seeing the golden opportunity to launch both 4G services and the new Apple handset simultaneously for maximum marketing impact. Japan's second and third cellcos, KDDI and Softbank Mobile, will both launch LTE this Friday, on the same day they kick off iPhone 5 sales. They are playing catch-up - larger rival NTT DoCoMo already has 4G services on offer, and for the first time is getting its own iPhone, with Apple including its unusual LTE band, 2.1GHz, in the international GSM model of its smartphone. Softbank was the only iPhone carrier for the third three generations but was joined by KDDI last year when Apple added CDMA, but DoCoMo has only offered the iPad to date.

Softbank, which does have a 4G offering running on TD-LTE technology, courtesy of its acquisition of key Willcom assets, says it will cover all Japanese cities by the end of this year with its more mainstream FD-LTE network, promising peak speeds of 75Mbps or 37.5Mbps depending on location. KDDI aims to top that with 75Mbps theoretical rates, with an upgrade to 112.5Mbps next year. However, its coverage targets are more conservative, applying only to major cities this year but accelerating in Q113 - 96% of the population will be in reach by next April, the carrier says.

Pages: 1 | 2