Updated September 25 with information about Verizon
How big a threat are Apple’s new iPhone equipment installment plans to telecom carriers? The answer depends on who you ask.
Apple’s new offerings let customers pay for their smartphones in 24 monthly installments beginning at $27 or to get a new smartphone every 12 months with ongoing payments beginning at $32.41 monthly. The offerings compete with the carriers’ own equipment installment plans (EIPs) and threaten to make it easier for customers to switch providers.
Executives from both AT&T and Verizon have downplayed the impact of the new Apple offerings. But challenger wireless carriers T-Mobile and Sprint seem to be taking the Apple EIP threat seriously.
Yesterday T-Mobile said it would offer the new iPhone 6s for just $5 a month if customers trade in an iPhone 6. And this morning Sprint attempted to one-up T-Mobile by offering the 6s for just $1 a month with a trade-in of the previous iPhone model. Both Sprint and T-Mobile also announced discounts on the iPhone 6s Plus, as well as low monthly iPhone 6s and iPhone 6s Plus rates for customers who trade-in older iPhone 5 models or another smartphone. Not surprisingly there are numerous conditions on these offers, detailed in the companies’ press releases, to which we have provided links here.
When launched in 2013, EIP programs aimed to enhance customer loyalty. For customers who didn’t want to wait the traditional two years for a device upgrade, EIP programs offered the option to get a new device in as little as six months. (Not everyone wants frequent upgrades, of course. For those customers who don’t mind using a phone that isn’t the latest model, EIP programs offered the opportunity to reduce monthly costs after paying off the device, typically over a period of 18 to 24 months.)
EIP programs have proven to be quite popular and have shifted many customers off the traditional subsidized model in which the carrier absorbed some of the costs of the device (at least for frequent upgraders) and the customer never stopped paying monthly equipment fees. Apple now has responded to this trend and rumor has it that the company’s key rival Samsung will launch its own EIP program soon.
“They’re interested in an annuity on equipment,” said AT&T Senior Executive Vice President John Stephens when asked about Apple and EIP at a financial conference earlier this month.
Stephens said he was “pleased” by the development. “From a selfish viewpoint, if a handset manufacturer wants to take responsibility for a $600 handset cost, that’s fine,” he said.
He said he didn’t expect many AT&T customers to buy from Apple, however, noting that Apple has 200 stores, compared to AT&T’s 2300.
“They’d love people to stay on iPhones forever,” said Verizon CEO Lowell McAdam about Apple in a question-and-answer session at the same financial conference where Stephens made his remarks.
“I think of it the way I think about bring-your-own -device,” said McAdam, who noted that a relatively small percentage of customers are interested in the BYOD option.
It’s worth noting that Stephens and McAdams made their comments before Sprint and T-Mobile launched their low iPhone pricing. But I doubt either of them would say anything very different if asked the same questions today.
As some industry observers have noted, both companies continue to believe their networks offer an advantage over their smaller competitors. Accordingly both companies continually downplay the impact of ongoing promotions from the challenger carriers– including some other promotions that have been quite disruptive – and if the Big Two do react, they may not fully match the competitor’s promotion.
Nevertheless it would appear that Sprint’s and T-Mobile’s reactions to Apple’s offering may be more disruptive than what Apple itself did.
Update- Not long after we published this post, Verizon announced an EIP plan of its own for the iPhone 6s. In a press release the company hinted that it was making the move in response to promotions from Sprint and T-Mobile.
Verizon noted that its offering was “a better option than those ‘lease plans’ offered by other companies, which can include surprise balloon payments just 18 months into your agreement, or ask you to turn over your phone without getting anything for it.”
As usual Verizon did not directly match what Sprint and T-Mobile are offering but instead is matching Apple’s $27 monthly price for the two-year purchase plan. The company also is offering customers the ability to get a new iPhone after 12 months.