Apple's new iPhone Upgrade upends the traditional model of carrier-controlled service plans -- a model that has changed significantly during the past year -- but AT&T's CFO appears unfazed about what it will mean for carriers and even managed to find some upsides for his company.
Along with the new iPhone S6 and 6S+, Apple Inc. (Nasdaq: AAPL) this week announced a new iPhone Upgrade program that will let consumers purchase their phone directly from Apple for $32 to $37 per month for two years (plus Apple Care warranty) and upgrade their device each year. Rather than buy a service plan from an operator, the phone will be unlocked, allowing the consumer to choose their provider, while Apple would own that customer relationship. (See Apple iPhones Add More LTE & Ways to Pay.)
In a nutshell, Apple is seeking to sideline the operators.
But John Stephens, AT&T Inc. (NYSE: T)'s senior executive vice president and CFO, doesn't expect many consumers to take advantage of the offer. Speaking at an investor conference Thursday, he gave several reasons why this move by Apple could be even be positive -- or at least neutral -- for mobile service providers:
- 1. Simplicity: While the amount consumers pay AT&T each month will be less, they will better understand the split between equipment and service fees and view the service more positively.
- 2. It's not a revolutionary offer: The 12-month upgrade eligibility part of the announcement has been around for years from the wireless operators, so Apple is just another third-party offering it.
- 3. It could boost "used" device inventories: Apple's offer could help the device-maker sell more new phones and, as a result, could give AT&T access to slightly used phones for its prepaid market and in Mexico;
- 4. Less hassle for AT&T: Apple is taking responsibility for the customer and initial cash investment.
- 5. It's no big deal: Stephens doesn't expect many consumers to take advantage of the offer anyway.
"In reality, the stores of handset manufacturers don't really sell a high percentage of our phones," he said. "We sell our phones generally through our 23,000 company-owned retail stores and through our authorized agents and distributors. That's a much, much higher -- extensively higher -- percentage than what we sell through handset manufacturer stores."
When asked about the potential risk of higher churn, Stephens pointed out that AT&T reported record churn last year in a "noisy environment." Further, he said, 90% of its customer base is on some kind of value plan, whether it be Mobile Share, a family plan, or business bucket. These customers get the best prices on AT&T services, he said, so he doesn't expect them to jump ship to Apple.
"Time will tell. We feel real comfortable about this not being a significant item because we spend so much time building value plans," he said.
T-Mobile US Inc. and Sprint Corp. (NYSE: S) were also quick to respond to the new plans, both praising the move and pointing out they had cheaper monthly rates if consumers go through them. T-Mobile CEO John Legere tweeted after the announcement: "This is awesome and will benefit smaller carriers and enhance ability to switch from @ATT and @verizon to @TMobile!!!"
He followed up Thursday with an announcement that T-Mobile customers will be able to get the iPhones 6s for $20 a month for 18 months with JUMP On Demand and the iPhone 6s Plus for $24 a month without any up-front costs. In addition, it's letting customers with either phone try T-Mobile and switch at any time with no fee to leave and get their money back if they leave within the first month.
Sprint also sent out a reminder that new and upgrade-eligible Sprint customers can lease the new iPhone for just $22 per month with iPhone Forever and upgrade at any time, although its cost does not include insurance.
As Stephens notes, it remains to be seen how Apple's iPhone Upgrade plan fares in the market. Apple's hope is that it will lock more customers into the iPhone -- and into Apple -- for life, and it will get them upgrading every year rather than the traditional two years or more. The actual cost of doing this will depend on how much consumers can get by turning in a phone every year.
Apple's program may not necessarily be the best deal, but it could have appeal that spreads beyond just its biggest fanboys and fangirls. If so, the operators will have many reasons to worry.
— Sarah Thomas, , Editorial Operations Director, Light Reading