Apple (NASDAQ: AAPL) is likely going to unveil its newest iPhones tomorrow, expected to be called the iPhone 6S and 6S Plus, and every major U.S. carrier will likely announce plans to carry the phones. However, for the first time since the iPhone was introduced in 2007, U.S. operators will be favoring equipment installment plans and leasing over two-year contracts, potentially creating a conundrum for both Apple and the carriers.
Both parties will need to decide how to emphasize the pricing of the phones. In the past, a new 16 GB iPhone was often marketed at a subsidized price of $200 with a two-year contract, concealing the $650 cost of the phone. Carriers took the hit on the subsidy upfront, in exchange for higher service pricing baked into the two-year contract, allowing operators to recoup the cost over the course of the contract. Now, the conversation and equation has flipped. How will the pricing be marketed now that customers are more aware of the true cost of iPhones?
As Re/code notes, Apple will likely promote the phones, as carriers have been doing recently, by saying that customers can get the new gadgets with virtually no upfront payment and low monthly installments that get tacked onto the service bill. For instance, AT&T Mobility (NYSE: T) offers the option of getting a 16 GB iPhone 6 for $21.67 per month over 30 monthly installments, which works out to $650; customers can upgrade after 24 installments.
Carriers have been emphasizing this as a way to cut their subsidy costs. They still need to make huge capital outlays for phone inventories, and have been offering discounted service pricing for those who avoid two-year contracts, aiming to make up for the difference with equipment revenues. Carriers have also emphasized a new metric for investors to look at -- average monthly billings per user, which takes into account service revenue and what the carriers receive in device billings either through EIP programs or leasing.
The carriers are also going to heavily emphasize their own promotions, which have already started, and aim to give customers the ability to make lower monthly device payments than they normally would. Sprint (NYSE: S) has said new and upgrade-eligible Sprint customers can get a 16 GB iPhone 6 for just $22 per month in device costs with its new "iPhone Forever" program. Under the program, which lasts indefinitely, Sprint said anytime customers don't have "the latest" iPhone, they are eligible to upgrade. Customers can bring their iPhone, trade it in and upgrade on the spot, Sprint said. Customers need to purchase the device through the Sprint Lease program with $0 down at signing for $22 per month for a 21-month lease for qualified customers.
Importantly though, Sprint said that through Dec. 31, customers on any other carrier or existing Sprint customers who are upgrade-eligible and who turn in any smartphone will get a promotional rate of just $15 per month on a new iPhone. Sprint said it will pay off customers' old existing phone costs and contracts if they switch.
Sprint said new or existing customers who are upgrade-eligible can bring in any smartphone and get a 16 GB iPhone 6 and their monthly device payments will be just $15 until their next upgrade. As a special promotion, customers who get iPhone 6 and then upgrade again before Dec. 31 will continue with the discounted price of $15 until their next upgrade. When customers next upgrade after that, the leasing price will return to $22 per month.
In late July T-Mobile US (NYSE:TMUS) came out with its own special program for customers who want to upgrade to the latest Apple iPhones. Under T-Mobile's "Jump! On Demand" program, customers lease phones, pay a monthly device fee and upgrade to a new phone as often as three times every 12 months. When the program was announced in late June, T-Mobile said customers could get a 16 GB iPhone 6 for $15 a month with Jump! On Demand when they traded in their current smartphone, which is lower than similar offers on monthly installment plans.
T-Mobile said every customer who gets a new iPhone 6 this summer as part of the deal can simply swap it for the next iPhone if they upgrade before the end of the year. Customers will not need to change their monthly payment and will not need to pay a deposit or fees -- and they can keep paying the $15 per month on device costs.
- see this Re/code article
Analysts: Verizon, AT&T could embrace leasing over EIP, might partner with Apple on leasing ventures
Verizon: Existing customers with 2-year contracts and subsidized smartphones can keep them
Rumor Mill: Apple's iPhone 6S will shoot 4K video, company won't release 4-inch iPhone 6c
Sprint to abandon 2-year contracts by year-end, embrace leasing exclusively
T-Mobile unveils 'Jump On Demand' program, lets customers upgrade 3 times per year
AT&T's de la Vega: 2-year contracts will eventually go away