AT&T embrace of iPhone threatens Sprint's recovery

Cary Fabrikant's devotion to Apple Inc. spells trouble for his cellular carrier, Sprint Nextel Corp.

Fabrikant, a Miami sports agent, plans to forfeit $200 and switch to AT&T Inc. to get an iPhone, Apple's blend of an iPod music player with a mobile phone, when it goes on sale today.

"If it's everything that's promised, I won't think twice about breaking my contract," said Fabrikant, visiting an Apple Store at a Los Angeles shopping mall this month. "It'll be way more consumer-friendly than anything else out there."

There may be thousands more like him. Armed with an exclusive deal to sell the $499 to $599 iPhone, AT&T, the largest U.S. wireless carrier, will lure more than 1.1 million customers from No. 3 Sprint by next year, Bear Stearns analyst Michael McCormack predicts. That could crush Sprint's promise to reverse three quarters of subscriber declines and endanger a 16 percent jump in Sprint's shares this year (through Tuesday).

"Sprint is the one that gets hurt the most, stock price-wise and operationally," said Christopher Larsen, a Credit Suisse analyst in New York who rates Sprint "neutral" and AT&T "outperform."

Sprint's shares have climbed faster this year than AT&T and New York-based Verizon Communications Inc., propelled by buyout speculation and Sprint's forecast for a return to subscriber growth.

Shares of Reston, Virginia-based Sprint fell 65 cents to $21.31 at 12:28 p.m. in New York Stock Exchange composite trading. San Antonio-based AT&T advanced 30 cents to $39.59 and had climbed 9.9 percent this year before Wednesday. Verizon Communications, which co-owns No. 2 Verizon Wireless with Newbury, England-based Vodafone Group Plc, declined 34 cents to $40.73 and had risen 10 percent this year.

At those prices, Sprint is trading at 25 times estimated 2007 earnings, more expensive than AT&T's 15 times estimates and 17 times for Verizon. If Sprint can't stem account losses this year, the stock may fall below $20, said Larsen.

The iPhone "could be the difference between, 'Wow, that's a really good quarter,' and 'Oh boy, you guys have problems,"' Larsen said.

Reviewers from the Wall Street Journal, the New York Times and USA Today lauded the iPhone's software and design today, while noting that reception isn't clear in some areas. The Journal's Walt Mossberg called the device a "beautiful and breakthrough handheld computer."