Apple’s 5G-capable iPhone 12 debuted yesterday and AT&T immediately put out an aggressive offer, leading MoffetNathanson analysts to conclude that promo wars are back.
At AT&T both new and existing customers on unlimited plans can get a free 5G iPhone with up to $800 off when they trade in at least an iPhone 8.
“We had been skeptical about whether AT&T could start a price war (or, more accurately, a promotion war) given their stretched balance sheet, but in fact it was AT&T’s offer today that is by far the most aggressive,” wrote senior analyst Craig Moffett in a Tuesday note to investors.
In terms of the offer, “let’s just call it a preemptive race to the bottom,” Moffett wrote. “A net subsidy in excess of $600 strikes us as rather steep, especially for AT&T.”
Analysts at LightShed Partners also determined that "the fat subsidy is back" regarding AT&T’s $800 offer and accepting trade-ins valued as low as $95.
“That is the largest promotion we have ever seen on an iPhone launch day, topping the $650 offers by all carriers back in 2016 and topping the $700 that Verizon offered to new subscribers last year,” wrote LightShed’s Walter Piecyk and Joe Galone in a Tuesday post.
Roger Entner, founder and analyst at Recon Analytics, also views AT&T’s offer as “very aggressive.”
Still, the key question, he said, is how generous the carriers will be with at trade-ins, as the promotion figure is the maximum amount.
“Because they can low-ball you or high-ball you and that’s not clear,” Entner told FierceWireless.
Verizon, which was featured prominently at the Apple event with CEO Hans Vestberg joining Tim Cook on stage, also has a free offer with trade-in but it’s limited to new customers that sign up for an unlimited plan.
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Verizon’s deal “seems positively pedestrian by comparison,” Moffett wrote.
For existing customers, Verizon’s offering the iPhone 12 for as low as $15 per month, via a $440 trade-in credit for iPhone X or newer, applied over 24 months. They also need to sign onto an unlimited plan that offers 5G. Verizon customers that trade-in an iPhone 8 or 8+ can get a $250 credit towards an iPhone 12.
Where’s T-Mobile?
Notably absent from the promotion frenzy yesterday was T-Mobile. The operator unveiled its own iPhone 12 offers today but was a day late to the party. It did not go unnoticed by industry observers and analysts.
Entner was surprised T-Mobile didn’t show up immediately, noting it’s not in its typical playbook and suggested the recent network focus and attention left T-Mobile “flat-footed” in terms of competition in the promo department.
“I think they were in love with their network and didn’t realize that other companies are still competing in that market too,” Entner said, pointing out that promotions are key in terms of subscribers.
“It’s device promotions that are moving things, not the network alone,” Entner said. “The network keeps you there, the promotions get you there.”
LightShed analysts speculated Tuesday that T-Mobile CEO Mike Sievert may have learned lessons from promotion wars in 2016 or that it was a marketing misstep.
Yesterday the firm noted that Apple’s website showed the cost of T-Mobile’s iPhone at $30 higher than AT&T and Verizon, with no special incentives. “The visual on the Apple site is just not good,” wrote LightShed.
Today, T-Mobile said that consumers can get up to $500 off when they trade in iPhone Pro or iPhone XS series, which increases to up to $850 (making the iPhone 12 free) when customers also add a new line.
T-Mobile’s offer is both late to the party, but also much more targeted than AT&T’s, according to Entner. By only accepting recent and pro models, T-Mobile limits the people who are eligible for the full value trade-in offer, he said.
That’s because the customer base has two broad camps in terms of when they decide to buy a new phone. Entner said about half of customers choose to get a new smartphone each year, while the other half wait until their device breaks.
T-Mobile’s promotion is for what he referred to as “the fashion buyers,” or those that need the newest phone. But added that time is on T-Mobile’s side as the operator builds out its network, including thousands of 2.5 GHz sites, which should significantly improve by the end of the year.
As for AT&T’s $800 trade-in credit promotion that’s offered over a 30-month installment plan with iPhones locked onto AT&T’s network, analysts think the carrier’s aim is pretty clear and that’s to keep customers in place.
“For AT&T clearly a big motivation is to shore up their base, keep them where they are,” Entner said. “It’s an aggressive base management move.”
LightShed analysts also pointed to AT&T’s desire to keep subscribers with the aggressive iPhone 12 promotion and lengthy device plan.
“Hold onto and perhaps even grow your wireless subscribers ahead of T-Mobile’s differentiated 2.5 GHz deployment and Verizon’s 5G marketing push,” wrote Piecyk. “This could provide a positive subscriber metric for AT&T and an opportunity to get more subscribers onto HBO Max.”
While handset sales accounting will protect AT&T’s reported EBITDA, according to LightShed, the firm said cash EBITDA and free cash flow for dividends “will likely take a hit this year and next from this promotion.”
Verizon still wins Apple event
While Verizon’s promotion isn’t as aggressive as AT&T, Moffett pointed to Verizon as the big winner from Apple’s iPhone launch.
Its mmWave capabilites (though still very limited in presence) are now in focus, and the firm indicated Apple’s big move to include mmWave support could mean the iPhone-maker sees Verizon’s differentiator.
Getting mmWave into a smartphone doesn’t come without its trade-offs, as the firm noted. It adds to the cost, makes the device more power hungry and, as was seen with some early 5G smartphones in 2019, creates more heat from the increased energy consumption.
“It’s a clear victory for Verizon that Apple nonetheless went all-in on mmWave” Moffett said, pointing to support for both Verizon’s 28 GHz, which is what the carrier initially used for 5G deployments, as well as 39 GHz across the entire line new line of iPhones.
The latest iPhone models also support CBRS, and Entner noted Verizon has built out its network with infrastructure to support those airwaves. Verizon also just spent significantly at the FCC’s CBRS PALs auction.
On average, Verizon will have 38 MHz of spectrum, Entner said, which doesn’t catch up to T-Mobile’s lead but does help close the gap.