Will Verizon shares get the 'iPhone curse'?

One columnist thinks the iPhone jinxed AT&T shares. But AT&T had a lot to do with that curse all on its own.

By Kim Peterson Feb 4, 2011 4:00PM
Steve Jobs (©Paul Sakuma/AP)
SteveJobs_012111_AP_164.jpgAre Verizon (VZ) shares set to plummet on the iPhone curse?

That's what SmartMoney's Jack Hough says. AT&T (T) shares have dropped 17% since it started carrying the iPhone, he writes, while Verizon shares rose 9%. Maybe it's time, he says, for investors to sell Verizon and pick up AT&T.

I'm still not sold on an iPhone stock curse, but I'll give Hough a chance. Here are what he describes as the three foundations of the iPhone curse:

1. High investor expectations. The iPhone and hype go hand in hand, no matter who the carrier is. AT&T shares rose 22% between the time Apple (AAPL) announced the iPhone in January 2007 and the device's launch, Hough writes. AT&T shares began sliding in October when reports surfaced that Verizon would soon get the iPhone.

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But unlike AT&T, Verizon hasn't seen a massive stock spike since rumors surfaced that it would carry the iPhone. Since October, its shares have only risen about 9% -- so any bubble-bursting plunge may not be as dramatic. Still, expectations are indeed high. Verizon began taking iPhone pre-orders at 3 a.m. yesterday, and had to stop at 8:10 p.m., Reuters reports. The carrier beat its previous first-day sales record in two hours.

2. A hit to earnings. At least in the short term, Hough writes. Apple demands very high subsidies, as much as $400 per unit, from carriers for the iPhone. Verizon may have to pony up $3 billion to $5 billion in subsidies this year, which will undoubtedly take a bite out of earnings.

One Nomura analyst estimates that Verizon could sell at least 12 million iPhones this year, according to Reuters. He added that margin pressure would not likely ease after the initial sales are over with. AT&T never got a break on iPhone margins, he said.

3. Uncertain reaction. Verizon "has to actually release the device to an army of obsessive Apple nerds just itching to turn any perceived imperfection into an online corporate hate campaign," Hough writes. Sure, that could turn into a hit to the stock. But we saw that nerd army practically beside themselves when the iPhone 4 ran into antenna problems, and that storm has largely passed. I can't see nerd rage as a huge factor here.

Hough is right about one thing: This is Verizon's week to shine. Expectations are incredibly high for its iPhone and the carrier hasn't been hit yet with user complaints about slow speeds, dropped calls and the like. It's all downhill from here.

But any iPhone curse to the stock is a stretch. AT&T shares took a beating for multiple reasons, including shoddy customer service, poor voice quality and dropped calls on its network and a declining customer base in its landline business. Any curse to the stock was largely of AT&T's making, not because of the iPhone.

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