Sep 24, 2015 — by: Mark Reschke
Categories: iPhone

Iphone_upgrade_programApple has set of a firestorm of activity in the cellular carrier space. Apple’s $32 a month iPhone Upgrade Program has carriers in a panic, and for good reason. For $32 a month, a new iPhone 6s can be had now, and every year, the latest and greatest iPhone can be had. All one needs to do is agree to continue the payment program for a 24 month period. At some point, for those that want to move away from an iPhone can do so, they'll just need to pay off the stream of payments to Apple and turn the iPhone back in, or just ride out their iPhone for 2 full years. 

The reason carriers are busy countering Apple’s offer is simple. Apple’s program is about to turn carriers into dumb pipes, the likes we have not seen since the original iPhone. Apple uses unlocked iPhones. Thus, anyone signing up with Apple’s iPhone program can join month-to-month carrier programs, and jump ship to whomever they want, whenever they want. Maybe it is AT&T today, but tomorrow T-Mobile delivers a cheaper monthly program with more data and unlimited music streaming. No problem. Next month just jump onboard with T-Mobile. Six months later Sprint offers an unlimited everything plan? Go for it. 

Reaction to Apple’s lease program is already taking effect. One carrier allows you to get a new iPhone for $1 a month. Of course, there are all kinds of gotchas in these types programs. The devil, as is typical, lies largely in the details. Carriers are promoting some massive discounts to court users away from Apple’s simple $32/month plan. But the overarching trick is that while Apple’s iPhones are unlocked, the carrier iPhones provided in their discount plans are not. And since this is a lease program, they are not going to unlock the iPhones as they technically own them, not the user. The carriers are pushing the fact many of their plan programs can be quit at any time without penalty, the customer is essentially stuck anyway, because they do not own the phone, the carrier isn't going to unlock it for them and they are on the hook for the balance of the contract.

The biggest fear for the carriers is millions of users uncovering the gotchas, and moving to Apple’s direct, unlocked, iPhone lease program. As it catches on, AT&T and Verizon are likely to start limiting month-to-month programs for those with their own iPhones, moving back to a 12 or 24 month commitment programs, while T-Mobile and Sprint are likely to use that as an advantage to court more customers.

The biggest losers are A&T and Verzion. Under the leadership of John Legere, T-Mobile has been growing by leaps and bounds, pushing the market to becoming nothing more than an unlimited data pipe. Apple’s program should be music to Legere’s ears, T-Mobile is more than happy to see iPhone customers come join T-Mobile’s large data offerings at fire sales prices. Sprint is also becoming very aggressive and should gather more than a few Verizon customers. T-Moble and Sprint are also margin squeezed, but their hope is in more monthly customers with locked in iPhones.

One question that keeps coming up is how Apple makes money in all of this? Apple is essentially offering the iPhone with AppleCare for $384 a year (12 months at $32). But the iPhone 6s 16GB model retails for $649. How does Apple make money? While the user gets a new iPhone after 12 months, the old iPhone is returned and sold by Apple to a 3rd party seller in the range of $250 or more. Apple more than makes their $650 in a little over a year with the program, while the user pays only half. Everyone wins — except the carriers.

For the consumer Apple’s lease program is a massive win. An iPhone via Apple can be chosen, allowing massive carrier flexibility. Or a user can choose a provider lease plan from T-Mobile or Sprint, resulting in saving of several hundred dollars a year, but causing that phone to be locked to that carrier.

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4 Comments

  1. Ted Gerold ~ Sep. 24, 2015 @ 12:08 pm

    > pay off the stream of payments to Apple and turn the iPhone back in WTF? So you pay them $768 and THEY get to keep the phone?? I don't think thats the way it works. I think if you pay off the 24 months you keep the phone. #
  2. Matt ~ Sep. 24, 2015 @ 2:24 pm

    So over 24 months you pay $768 plus thousands in fees. I still think the carriers are ripping off their customers. #
  3. Justme12 ~ Sep. 24, 2015 @ 3:15 pm

    But that is all they are - dumb pipes. They offer no value after the pipe. Cable companies are almost in the same situation. Cord cutters etc… #
  4. nz ~ Sep. 26, 2015 @ 8:34 pm

    T-Mobile is offering to unlock the phone after just one month. So if you're not in a big rush to have an unlocked phone, it might be a good deal. #

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