As much as the new iPhone 4S dominates the imagination of consumers who are buying Apple's latest gadget at a record pace, there is a second trend going on in that industry that is arguably even more important: Pricing.
"The iPhone has really been a high-end driven product," says William Power, a senior research analyst at Robert W. Baird. "Now with the iPhone 3GS being offered for free with a two-year contract, that makes it much more competitive with some of the lower priced alternatives."
In fact, if you check out the AT&T Wireless website, you will see that it is the older iPhone 3GS model that is out of stock. To me, that demonstrates that price does matter and perhaps there is a limit to how many $400 phones you can sell to the masses during a recession.
Verizon (VZ) and AT&T (T) reported third quarter earnings this week, both in line with Wall Street estimates. However, AT&T noted lower subscriber growth after losing its exclusive partnership with Apple (AAPL).
"From a pure organic basis, our viewpoint is that Verizon will be able to maintain its lead in subscriber growth," Power says, pointing out that if - and when - AT&T closes its acquisition of T-Mobile, the company would vault to the top of the subscriber derby.
While he rates both Verizon and AT&T as "outperform" Power says the other looming issue facing the telecom service providers is capacity. Specifically, having the necessary plumbing in place to make sure all of those fancy new phones work well and work fast.
"AT&T likes to cite that its data traffic is up 8000% over the last four years," Power says. "The big question for them over time is whether they generate enough revenue to offset that traffic increase."
It's Not All About the iPhone
New figures suggest that Google's (GOOG) Android platform offered by multiple manufacturers is pulling away from Apple at a 3-to-1 clip. There are any number of ways to play the Android trend, but the cold hard fact remains that if you want to play wireless service providers, the same two stocks always rise to top of the list: AT&T and Verizon). The fact that Verizon pays a 5% dividend and AT&T's is 6%, doesn't hurt either.
Finally, Power says it's not the time to bottom fish and buy Sprint (S), despite its own new iPhone deal. He says the company is "facing a host of challenges" and points out that while unlimited data plans drive subscriber growth, they also increase data traffic - the same concerns Sprint's larger rivals are facing. In fact, Power says, the big surprise that came out of a recent analyst meeting was distinctly not about iPhones or Androids or anything like that, but rather it was Sprint's admission that it expects to be out of spectrum by 2014 or 2015.
If true, it's a problem that could turn so-called smartphones of all stripes into little more than high-priced paperweights.