Wall Street analysts’ sigh of relief: ‘iPhone 8 promos appear more rational’

Apple will begin selling the iPhone 8 and 8 Plus in the coming weeks. (Apple)

A handful of Wall Street research analysts said that, at least initially, the nation’s wireless carriers are focusing mainly on trade-in promotions related to the upcoming release of Apple’s new iPhone 8 and 8 Plus. And that strategy, they argue, is far less aggressive than the “free iPhone” promotions that many carriers ran last year at this time.

“Our first glance at new iPhone promotions from carriers indicates a less aggressive stance relative to last year, and vs. more cautious investor expectations. For context, last year’s ‘free iPhone 7’ promotions during later September spurred investor fears around a return of subsidies (combined with lower, EIP-centric service pricing). While carriers backed away within 2-3 weeks, 4Q16 promotions included additional handset discounts (and free/discounted add-on lines from others), ultimately evolving into the unlimited price wars of 1Q17,” wrote the analysts at Deutsche Bank Markets Research in a research note issued late yesterday.

“Following the much anticipated iPhone release, we have yet to see the flurry of promotional activity that accompanied prior launches,” agreed the analysts at Jefferies in a note to investors yesterday. “In an effort to gain subscribers in a highly competitive market, promotions for new devices have become a desperate attempt to maintain/gain net adds. We are pleased to see more rationality in the marketplace than last year, where subsidies for free or discounted devices heavily weighed on margins. While the release of new devices will drive higher upgrades in 2H, we expect adoption of EIP has driven customers to hold onto phones longer; this will likely drive lower upgrade rates than seen in historical iconic device launches.”

To be clear, though, it’s still early days, and carriers may well decide to pull additional promotional levers as the weeks pass. Indeed, just this morning T-Mobile announced an iPhone upgrade program “that’s 100% free,” according to the carrier. The operator explained that customers will be able to trade in their iPhone 8, 8 Plus or X when 50% of the gadget’s price is paid off, and then T-Mobile will wipe out their remaining payments so they can upgrade to a new iPhone. “T-Mobile customers who buy or pre-order their new iPhone 8, 8 Plus or X on EIP automatically get this one-time benefit,” the carrier said.

Nonetheless, Wall Street analysts generally agreed that wireless carriers are taking a much more measured approach to this year’s holiday shopping season compared with last year’s iPhone promotions.

“Following a 2Q17 lull, the initial promotions carriers appear to be introducing for this year’s iPhone 8/8+/X launches appear somewhat subdued vs. expectations. Based on press reports and our checks to date, carrier promotions include handset credits (with trade-ins) or BOGO (buy one, get one) offers, and steer clear of the ‘free iPhone 7’ offers seen last year. This could (and we stress ‘could’) help improve depressed sentiment around Wireless, given what appears to be an intent to maintain competitive rationality from a margin perspective. Of course, we await formal releases from select carriers outlining initial iPhone promotions, and (more importantly) will be monitoring competitive dynamics during the more aggressive 4Q holiday selling season,” the Deutsche Bank analysts wrote.

So far, here are the various promotions around the iPhone 8 and 8 Plus:

  • AT&T is offering a BOGO program for buyers of a new iPhone 8 or 8 Plus, among other iPhones, for customers who also subscribe to its DirecTV service.
  • T-Mobile will give a $300 trade-in discount on any new iPhone bought on an installment plan to users who hand over their iPhone 6 or newer in good condition. And the carrier is enabling users to sign up to be alerted about special offers and when preorders will be accepted.
  • Sprint CEO Marcelo Claure guaranteed via Twitter that the carrier would have the sweetest deal on Apple's new phones. And Deutsche Bank reported that Sprint will be offering 50% off iPhone 8/8+ lease payments, with trade-in of an iPhone 7. “We also believe Sprint is likely to maintain its ‘5 lines for $90/month’ rate plan promotion, which it has offered at different points in time throughout this year,” they wrote.

Verizon said it will unveil its promotions later this month, presumably giving it time to crunch the numbers. But the analysts at Deutsche Bank reported Verizon is offering a $300 trade-in credit.