Apple's Verizon iPhone could mean tough year for AT&T, analysts say

With over 3 years of iPhone exclusivity in the U.S., AT&T has enjoyed a steady stream of new subscribers, but the announcement of a Verizon-compatible CDMA iPhone at Tuesday's Verizon event could disrupt AT&T's growth streak.

"I think AT&T is going to get demolished," Reuters reports Gleacher & Co analyst Brian Marshall as saying. Earlier comments from Marshall suggest that Verizon could see 5 percent of its existing customers upgrade to the iPhone in the initial launch quarter, a pace faster than that of the original iPhone launch on AT&T in 2007.

According to the Reuters report, many analysts see AT&T losing contract customers this quarter, which would be a first since AT&T was formed through the merger of AT&T Wireless and Cingular Wireless in 2004.

Some analysts' reports predict 2011 subscriber losses of over 3 million customers for AT&T. Todd Rethemeier, an analyst with Hudson Square, is on the "pessimistic end" of that scale.

"There's been 3 years where Verizon's customer base has had iPhone envy. They're going to want to get it as soon as they can," said Rethemeier, who believes AT&T will lose 3.5 million high-value contract customers in 2011.

Steve Clement of Pacific Crest expects AT&T to lose customers in the first half of the year, eventually ending the year with no net gains in subscribers.

Barclays analyst James Ratcliffe, considered one of the more optimistic of analysts covering AT&T, sees the carrier going through a tough 2011, but still expects AT&T to add 1.4 million contract customers this year. According to Ratcliffe, about 15 million new AT&T iPhone customers from 2010 are unable to leave for Verizon Wireless without "great expense" from early termination fees on AT&T's contracts.

An AT&T spokesman downplayed analysts' concerns, noting that the carrier added 5.2 million iPhone customers in the third quarter in spite of rumors of an upcoming Verizon iPhone.

AT&T stock dropped 1.8 percent on Monday, closing at $28.34. Meanwhile, investors were bullish on Apple, with shares of Apple stock closing up nearly 2 percent at an all-time high of $342.46.

Verizon has long held the No. 1 spot in the U.S., though AT&T's strong growth, largely due to iPhone exclusivity, has brought it within striking distance. As of the end of September, Verizon had 93.2 million subscribers, while AT&T had 92.8 million.

Earlier Monday, Piper Jaffray analyst Gene Munster predicted that Verizon could cannibalize as many as 6.5 million iPhone sales from AT&T.

However, third place Sprint and fourth place T-Mobile could stand to lose the most, analysts say. Shaw Wu of Kaufman Bros. believes Verizon may have paid extra to keep the iPhone between AT&T and itself in the U.S. "Because of this, we believe the iPhone isn't likely to appear on T-Mobile USA and/or Sprint until later," Wu said in a note to investors Monday.

Ahead of the Verizon iPhone launch, AT&T and Verizon are touting their respective network speeds. On Monday, AT&T spokesman Larry Solomon said iPhone users on Verizon should be "ready for life in the slow lane." A third-party study in November found that AT&T had wireless speeds as much as 60 percent faster than its competitors.

A subsequent Wall Street Journal report claimed that Verizon remained confident in its network, citing sources familiar with the matter.

Verizon will reportedly offer unlimited data plans for the iPhone on Tuesday. AT&T ceased offering unlimited data plans to new subscribers last year, prior to the release of the iPhone 4.