iPad to Offer Little Value to AT&T Stock

The value to AT&T from the 3G iPad is estimated to be less than 1% of the company's stock. Here's why.
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By Trefis.com

AT&T

(T) - Get Report

, which competes with

Verizon

(VZ) - Get Report

and

Sprint

(S) - Get Report

in the mobile plans business, has significantly increased its mobile phone market share in the recent years driven by its exclusive rights to sell

Apple's

(AAPL) - Get Report

iPhone bundled with its own voice and data plans.

AT&T is also offering the data plans for Apple's 3G-enabled iPads. There is speculation that AT&T is offering attractively-priced 3G data plans to boost iPad sales as part of a broader deal with Apple to maintain

iPhone exclusivity

for longer than the original agreement. From this perspective, the 3G iPad may be contributing more significantly to AT&T's value by helping the company to win new iPhone subscribers and retain existing ones.

However, the direct incremental value to AT&T from 3G iPads is estimated to be less than 1% of the company's stock. Below we explain in detail why the contribution of 3G iPads is limited.

3G iPads Will Be A Small Fraction of AT&T's Data Revenues

We estimate that Apple will sell about

4 million iPads

in 2010 and we expect this figure will rise to around 12 million by the end of Trefis forecast period. We also estimate that only about 25% of iPads sold in 2010 will be 3G-enabled U.S. iPads and that this figure will remain less than 40% by the end of Trefis forecast period.

We believe the mix of 3G iPads sales is influenced by the higher-priced 3G iPads compared to Wi-Fi only iPads as well as the incremental cost of monthly AT&T data (internet) service. Furthermore, a 3G iPad has many features that overlap with a 3G iPhone, reducing the prospective value for existing 3G iPhone users.

With fewer than 1 million 3G iPads expected to be sold in the U.S. in 2010 and average monthly data (internet, SMS) revenue of close to $22, 3G iPads will contribute less than 1.5% of an estimated $17.6 billion of AT&T data revenues for 2010. We expect this contribution to increase slightly to 2.5% by the end of Trefis forecast period.

3G iPads Will Contribute Less Than $2 Billion To AT&T's Value

At $22 per month, AT&T's 3G iPad data subscribers would be spending more on data than the average AT&T subscriber. We estimate that AT&T will earn, on average, $17 per month from data in 2010 and that this figure will increase to nearly $30 by the end of the Trefis forecast period.

You can modify our forecast above to see how AT&T's stock would be impacted if higher 3G iPad adoption were to drive monthly AT&T subscriber data revenue higher than what we're currently forecasting.

Based on incremental data revenues attributable to the 3G iPad over our forecast period, we estimate that the 3G iPad will contribute less than $2 billion to our $224 billion value estimate for AT&T, representing less than 1% of AT&T's stock.AT&T's gains from the 3G iPad over time will be limited by the eventual expiration of its right to be the exclusive 3G iPad data provider in the U.S. Similarly, competing tablet PC devices on other networks (Verizon, Sprint) will also limit AT&T's iPad data gains.

You can see

our complete analysis for AT&T's stock here.

Trefis

is a financial community structured around trends, forecasts and insights related to some of the most popular stocks in the U.S.