Other telecom analysts, notably Craig Moffett of Bernstein Research, have been far more alarmed by the interplay between iPhone subsidies and wireless margins... and with good reason.
Amid a mid-2012 telecom stock surge that put Verizon and AT&T among the top performers on the Dow Jones Industrial Average, Moffett argued iPhone subsidies could turn wireless margins negative, potentially disproving a fundamental shift in telecom profitability.
While a later than expected rollout of the iPhone 5 has buffered carriers from the full-impact of handset subsidies, Moffett's analysis appears to be playing out in persistent earnings downgrades for Verizon and AT&T.
While Verizon and AT&T are up over the past year, shares are down nearly 10% in the past three months, as investors brace for an iPhone-based earnings hit.The real question for analysts like Moffett and wireless investors to ponder is whether after a iPhone subsidy hit plays out in fourth quarter telecom earnings, industry leaders like Verizon and AT&T come back into favor and become a safe holding for investors, as they were in 2012. In the wake of a fourth quarter margin decline, analysts like Schildkraut of Evercore appears to be more optimistic about the benefits of long-term wireless growth profiles of Verizon and AT&T. Will investors and analysts agree? The debate on absolute subscriber growth and cyclical margin pressures takes on a new dimension as lagging carriers like Sprint (S), MetroPCS (PCS) continue to lose customers, but prepare for a revival in competition. For instance, in a late December interview with TheStreet, Moffett of Bernstein Research highlighted the prospect Sprint's new owner's initiate a wireless pricing war as a key 2013 risk outside of iPhone subsidies. Meanwhile, demand for Google (GOOG - Get Report)-Android powered handsets, and similar rollouts by Microsoft (MSFT) and Research In Motion (RIMM) could eventually undercut Apple's power to negotiate carrier subsidies, as some Apple bears argue. Verizon reports earnings on Jan. 22, with analysts expecting 51.9 cents a share in adjusted profit on $29.7 billion in revenue, according to analyst estimates compiled by Bloomberg. AT&T reports on Jan. 24 with analysts expecting an adjusted profit of 46.8 cents a share in $32.2 billion in revenue, the Bloomberg data show. Follow @agara2004 -- Written by Antoine Gara in New York