AT&T recently released its Q1 2011 earnings and based on continued strength in connected device additions and controlled SG&A expenses, we have updated our price estimate for AT&T’s stock to $38.08. One interesting note from the quarterly earnings was that iPhone-related business remain healthy for AT&T despite losing exclusivity in the recent quarter to Verizon. AT&T primarily competes with Verizon and Sprint in the mobile and landline businesses.
AT&T also noted more specifically that churn in iPhone subscriber base did not change. So were previous concerns regarding iPhone subscribers defecting to Verizon overblown? Maybe, but this is just one (early) data point. We’ll see how things move from here, but one data point is far from being a reliable trend.
Our price estimate for AT&T stands at $38.08, implying a 25% premium to market price.
Healthy iPhone Base
AT&T management commented that it has been able to mitigate the negative impact from the loss of iPhone exclusivity. There was no material increase in ‘subscriber churn’, which is a metric that shows what portion of a company’s total subscribers have defected. Management noted:
Even though iPhone exclusivity ended in the first quarter, the churn impact was minimal. Total churn was relatively stable with last year’s level, and, excluding merger impacts, postpaid churn was stable sequentially and up only seven basis points from the first quarter last year. 
AT&T saw about 3.6 million iPhone activations during Q1 2011, out of which about 23% were new customers to AT&T.  These activations were not too far from the 4.1 million figure for Q4 of 2010, which tends to be a seasonally better quarter.  Compared to the 2.7 million iPhone activations in Q1 2010, this was a notable increase. 
AT&T has pulled this off by improving its network and keeping a large amount of its postpaid subscribers (including iPhone) on family plans. The results bode well for the company given that it is becoming increasingly difficult to add new subscribers given general mobile market saturation and increased competition from both Sprint and Verizon.