Apple iPhone Holdout T-Mobile's Last Stand
T-Mobile's decision to put the iPhone on hold as its parent Deutsche Telekom looks for suitors could be a positive for recovering industry third Sprint. Without T-Mobile competition, Sprint will remain the sole "value" carrier to offer postpaid iPhone plans, notes Yin. This leads the analyst to conclude that a potential partnership between T-Mobile and Sprint might make the most sense, as Overland, Kansas-based Sprint has billions in iPhones left to sell, which it could market to T-Mobile customers.
However, while not selling the iPhone may make T-Mobile seem more attractive in a deal, an acquirer like Sprint would have to account for the earnings-eroding costs that the iPhone would wreak on T-Mobile's existing margins.
"Looked at differently, the combined company's EBITDA after the deal could be lower than the sum of the two companies' EBITDA before the deal, even after substantial synergies," writes Yin of the prospect between a T-Mobile and Sprint tie up.
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The Guggenheim analyst thinks T-Mobile has already made the decision to pass on the iPhone, at least for 2012.
"We believe T-Mobile likely had an opportunity to get the iPhone this year but declined; we would not be surprised if T-Mobile declined the iPhone for next year as well," wrote Yin in a recent note to clients.
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Handicapping T-Mobile's iPhone dance stands out as a metaphor for the industry, which faces crucial tests in the second half of 2012 after some players like AT&T, Verizon, Sprint and MetroPCS reported strengthening earnings and others like Leap fell sharply.
"The big picture, by now, is a well-understood one. Growth is slow but profitability is high," wrote Sanford Bernstein analyst Craig Moffett in an August 9 report summing up second quarter telecom earnings. To reach that high level of profitability, T-Mobile might have to swallow the earnings pain that Verizon and AT&T have moved past since they ate the iPhone subsidies.