Apple's (NASDAQ: AAPL) entrance into direct-co-consumer smartphone leasing is being embraced by T-Mobile US (NASDAQ:TMUS) and is a tactic pioneered by Sprint (NYSE: S). However, AT&T Mobility (NYSE: T) and Verizon Wireless (NYSE: VZ) remain wary of leasing, preferring instead to get customers on equipment installment plans, in which subscribers can keep their devices after fully paying for them in installments.
T-Mobile COO Mike Sievert said last week that the carrier had its best quarter ever in terms of iPhone sales in the third quarter and had the highest percentage of its sales as iPhones. That was fueled by traffic to T-Mobile stores but also customers buying their iPhones from Apple.
Under Apple's iPhone Upgrade Program, which starts at $32 per month and allows users to upgrade their iPhone every year, customers get an unlocked iPhone 6s or iPhone 6s Plus with the Tier 1 carrier of their choice, and Apple's AppleCare+ warranty service.
"We love it," Sievert told Bloomberg. "It is interesting. It's simplistic. It brings consumers more options and it's been a benefit to us."
Apple's program supports service from the big four nationwide wireless carriers. Users can purchase one new iPhone every year. Prices for the service start at $32 per month for the 16 GB iPhone 6s and increase to $45 per month for the 128 GB iPhone 6s Plus. The program is financed through Citizens One Personal Loans.
Some analysts have said that Apple's upgrade program could undermine the role of carriers by making them more interchangeable. "Separating the phone sale from the carrier is bad for the incumbents," Macquarie Securities analyst Kevin Smithen told Bloomberg. "If consumers take the time to go to Apple and get an unlocked device, then they have already decided not to go the easy route and just get an upgrade from the carrier.''
ZTE last month said it would launch a smartphone leasing program for U.S. consumers and larger rival Samsung Electronics is reportedly investigating its own leasing program. Leasing programs are typically cheaper per month than normal EIP programs, but customers do need to turn in their phones at the end of their lease. Sprint wants to move toward leasing as its primary way of selling phones. T-Mobile started doing so June. Yet top executives from AT&T and Verizon say they don't see a lot of consumer demand in their customer bases for leasing.
"I don't think it's a good deal for the consumer -- paying for the phone but not owning it," AT&T CFO John Stephens told Bloomberg after the company reported earnings Oct. 22. "But I'm just the finance guy, if our management thought customers wanted leasing, then we'd do it."
"And if we see that the customers are going to want that program, we'll certainly consider – we certainly have the capability to do it," Stephens said during AT&T's third-quarter earnings conference call, according to a Seeking Alpha transcript. "But right now we believe that the customers' satisfaction comes from that ability to own the phone at the end of that agreed-to term, and they feel real comfortable about that."
Verizon thinks that carriers could still be blamed if something goes wrong with phones bought through Apple. "If Apple finances the phone I don't have to," Verizon Communications CFO Fran Shammo told Bloomberg in an interview after the company reported earnings last month. "But the problem comes if the customer has a negative experience. They'll expect Verizon to take care of the issues. I don't think the ecosystem impact was fully thought through."
Shammo said on the company's earnings call that Verizon is not entertaining the idea of a leasing program right now. "Again, I never say 'never say never' but that is not something that I would have an appetite for," he said, according to a Seeking Alpha transcript.
Sprint will likely discuss its own leasing program and the impact of Apple's plan when it reports its quarterly earnings tomorrow. Sprint declined to comment ahead of earnings, according to Bloomberg.
For more:
- see this Bloomberg article
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