T-Mobile US, Verizon, AT&T and Sprint are all currently offering a free iPhone 7 to customers who trade in their existing iPhone 6 and agree to a 24-month finance agreement. The offer, according to BayStreet Research’s Cliff Maldonado, is “the most aggressive we have seen for a new iPhone at launch.”
“This is unprecedented,” he added.
“These promotions are not zero down or free on contract where the service plan has a device payment built in,” Maldonado explained to FierceWireless. “This is free as if you are bringing your own device to the carrier and only paying for service. Essentially, a consumer with an iPhone 6 or higher that is completely paid off can trade in their device with any of the big 4 carriers and receive a free 32gb iPhone 7 after 24 monthly billing credits, meaning their bill will not include a ~$27 a month charge for their device depending on carrier. This allows a customer who purchased an iPhone 6 under EIP and paid it off after 24 months to enjoy paying nothing a month for their device but have a new iPhone 7.”
Maldonado added that it’s not clear how long this new iPhone 7 promotion will last. He said T-Mobile was the first carrier to begin offering the promotion last week, and the operator was quickly joined by Sprint, Verizon and – late last week – AT&T.
T-Mobile’s offer, for example, requires customers to trade in an iPhone 6, 6s, 6 plus or 6s plus that they own, and the device must be able to turn on, and cannot be water logged or have a shattered screen. The must sign up for a “24 month no cost finance agreement” with T-Mobile, where they will see a monthly credit on their bill for 24 months. After 24 months, they will have paid nothing and will owe nothing. If a customer wants to leave T-Mobile before the 24-month period is over, they can either pay off the remainder of their device or return their phone.
Many consumers’ reactions have been "this is too good to be true - what's the catch?” he said. “The catch is the carriers are trying to steal customers and iPhone users are among the most valuable customers.”
Maldonado said BayStreet estimates roughly 19 million consumers purchased an iPhone 6 or 6 Plus in the United States in the three months after the device went on sale two years ago, and “thus could have a fully paid off iPhone and benefit the most from this promotion.”
While free phones aren’t new to U.S. wireless shoppers, the terms under this latest promotion certainly are. Previously, “free” phones were offered through two-year service contracts that essentially built the cost of the device into the monthly service plan. Therefore, carrier customers essentially paid off their device during course of their two-year contract.
However, U.S. wireless carriers have largely moved away from two-year contracts in favor of equipment installment plans (EIPs), which essentially separate the cost of a smartphone from the cost of carriers’ monthly service. As a result, most carriers have lowered the cost of their monthly service fees since the cost of a smartphone is no longer built into a service contract.
Thus, this latest offer for a free iPhone 7 may well cut into carriers’ margins since they likely will spend hundreds of dollars for each iPhone 7 they give away (they likely will recoup around $200 or more for a used iPhone 6).
Samsung’s recently launched Galaxy S7 also enjoyed a range of promotions, though carriers generally offered a buy-one, get-one-free deal around that device.
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