PREVIEW-Smartphones to drive AT&T, Verizon, Sprint results

* iPhone seen pushing AT&T growth ahead of Verizon

* Sprint seen narrowing losses with help from Evo

* AT&T margin pressure expected to be temporary

By Sinead Carew

NEW YORK, Oct 19 (BestGrowthStock) – The smartphone was the weapon
of choice in the third-quarter battle between Verizon Wireless,
AT&T Inc (T.N: ) and Sprint Nextel Corp (S.N: ) for high-value
customers who are happy to pay extra for wireless data
service.

AT&T, the exclusive U.S. provider of Apple Inc (Read more about Apple stock future.)’s (AAPL.O: )
iPhone, is expected to trump its rivals in subscriber growth
when the major telecommunications companies unveil quarterly
results over the coming days. Apple has already said it sold
14.1 million iPhones worldwide for the period. [ID:nLDE69I00Z]

While trailing AT&T, Verizon Wireless isn’t exactly hurting
for new subscribers, thanks to its sale of phones based on
Android, Google Inc (Read more about Google Stock Analysis)’s (GOOG.O: ) increasingly popular software.

And even Sprint, which has struggled for years to stem
losses of valuable monthly bill-paying customers, was able to
put up a good fight in the quarter with the help of HTC Corp’s(2498.TW: ) Evo phone, which makes use of the latest generation
of high-speed mobile data services.

“You’ve probably seen an acceleration of smartphone demand
in the third quarter,” said Pacific Crest analyst Steve
Clement.

Since the vast majority of the U.S. population already own
phones, all the U.S. wireless carriers are now focused on
convincing consumers to upgrade to more advanced phones that
come with obligatory monthly fees for wireless data services.

Having the latest hot phone is a way for operators to boost
revenue and tempt rivals’ subscribers to switch services.

Verizon and AT&T shares have risen since midyear amid
increasing investor confidence in smartphone sales and an
easing of nervousness around the impact of economic weakness.

Verizon’s 28 percent share price increase beat a 17 percent
increase at AT&T, as reports emerged that AT&T would lose
iPhone exclusivity in the first quarter.

IPHONE, DROID, EVO

AT&T, due to report results on Oct. 21, is expected to lead
in the growth of valuable postpaid customers who pay monthly
bills, with the average analyst expectation for more than
716,000 net additions, according to six analysts contacted by
Reuters.

Verizon, a venture of Verizon Communications Inc (VZ.N: ) and
Vodafone Group Plc (VOD.L: ), is expected to add 580,500 when it
reports on Oct. 22 and Sprint is seen losing 173,500 postpaid
customers when it reports Oct. 27, according to the analysts.

Analysts noted that AT&T and Verizon Wireless had to fight
harder to steal Sprint customers this time around. Sprint, they
said, benefited from both the Evo and its cheaper monthly fees
for wireless data services like texting and mobile web, which
drew cost- conscious customers to Sprint.

“Sprint’s becoming a much more credible competitor than
they were a year ago,” said Barclay’s analyst James Ratcliffe,
who sees Sprint reporting a third-quarter loss of 100,000
postpaid customers on Oct. 27, compared with a loss of 800,000
in the same quarter a year ago.

“All the evidence suggests that Evo’s done quite well,”
said Ratcliffe, calling it Sprint’s first strong flagship phone
in some time.

But Sprint’s rivals have been busy, too. Verizon Wireless
is already expected to kick off its next generation 4G services
in the fourth quarter with data cards for fast wireless
connections to laptops. It will follow with handsets early in
2011.

Verizon is also heavily promoting Android phones from
Motorola Inc (MOT.N: ) and HTC, helping make Android the U.S.
smartphone best seller in the second quarter [ID:nN04255464]
even before Motorola’s flagship Droid X appeared on the scene.

Motorola is seen reporting a total of 9.1 million phones
sold in the third quarter, including 3.7 million Android
phones, according to Gleacher analyst Mark McKechnie.

Many investors are betting that Verizon will push back more
against AT&T in the first quarter next year when analysts
expect it to start selling iPhone.

In the meantime, AT&T is seen activating about 4.8 million
iPhone customers in the third quarter, well ahead of the record
3.2 million customers it added in the year-earlier quarter.

One drawback to strong iPhone sales is an expectation for a
dip in profits, as AT&T pays a hefty subsidy to Apple for each
iPhone it sells. As a result, a big quarter for iPhone sales
means more upfront costs for AT&T.

Barclay’s Radcliffe recently lowered his estimate for
AT&T’s profit margin to 40.5 percent from 41.4 percent of
service revenue. In comparison, the analyst expects Verizon
Wireless to produce a margin of 45.5 percent, even after
lowering his estimate by 0.4 percentage point due to strong
smartphone sales to its customers.

However, investors will likely forgive AT&T’s profit dip
because big iPhone sales mean that AT&T has locked in a large
number of customers to its network for two years, which would
be of particular importance should Verizon start selling
iPhone.

“Locking up the customers on new two-year contracts is
certainly good,” said Hudson Square Research analyst Todd
Rethemeier, who also expects margin pressure to ease after the
iPhone 4’s first full quarter of sales.

“I think you’ll see in the fourth quarter, margins will
improve. The first quarter is the big hit. Then it settles,” he
said.
(Reporting by Sinead Carew; editing by Paul Thomasch and
Gerald E. McCormick)

PREVIEW-Smartphones to drive AT&T, Verizon, Sprint results