Image Gallery: Apple iPhone 4, A True Teardown
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At the same time, the brokerage upgraded AT&T's rating from "neutral" to "outperform," and said the carrier can hold its own against rival Verizon if it were to lose its exclusive contract for the Apple iPhone, according to a survey Credit Suisse conducted.
Credit Suisse analyst Jonathan Chaplin also raised his price target on shares of AT&T from $27 to $35. The survey revealed that even though many are under contract and would face a termination fee, 23% of AT&T iPhone customers would switch to Verizon if they had the chance. Some 3% of respondents said they would break their contract and about 18% of iPhone users would move to Verizon once their contracts ended, according to the survey.
Net new subscriptions for AT&T would be flat for 2011 as iPhone users migrate to Verizon and other wireless carriers once AT&T's exclusive contract with Apple ends, as opposed to a projected 1.5 to 2 million new subscriptions, the survey also found. About 1.3% of AT&T subscribers will leave in 2011, as opposed to 1.1% in 2010, the Credit Suisse survey said. "The impact from the loss of iPhone exclusivity should be substantially less than current valuations imply," Chaplin said in a note Monday.
AT&T is cheaper than Verizon and more likely to see upward growth, Credit Suisse said, even if the iPhone moves to Verizon. Noting that it was undervalued compared to Verizon, the brokerage upgraded AT&T's rating, and said AT&T should see about a 20% return on its shares next year and net income growth of 12%. However, Verizon is expected to see a huge increase in subscriptions next year -- doubling to about four million new customers from two million this year.
Through the second quarter of 2010, AT&T has seen its subscriptions skyrocket to about 24 million, Credit Suisse said, and 30% in 2009 and 2010 came from the iPhone.