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Business News/ Companies / Apple bypasses mobile carriers with iPhone financing, leasing
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Apple bypasses mobile carriers with iPhone financing, leasing

Apple customers can buy the iPhone 6S starting at $27 a month over two years, rivaling similar offers at each of the four nationwide wireless carriers

Apple CEO Tim Cook introduces the new iPhone 6s and 6s Plus during an Apple media event in San Francisco, California on 9 September 2015. Photo: AFPPremium
Apple CEO Tim Cook introduces the new iPhone 6s and 6s Plus during an Apple media event in San Francisco, California on 9 September 2015. Photo: AFP

New York: Apple Inc. will finance and lease the iPhone for the first time, providing new competition to the nation’s wireless carriers by offering consumers a way to get the latest mobile device sooner.

Apple customers can buy the iPhone 6S starting at $27 a month over two years, rivaling similar offers at each of the four nationwide wireless carriers. Through an “iPhone Upgrade Program," customers could lease a phone and upgrade to a new one once a year for monthly payments starting at $32. The phones must still be activated by a carrier.

Apple’s move makes it easier to ditch carriers, which used to lock customers into two-year service agreements by selling discounted phones. In recent years they began selling phones at full cost over 24 months with no contract.

“The plan will lower barriers to switching for wireless subscribers and boost industry churn," Jonathan Chaplin, an analyst at New Street Research LLC, wrote in a note. “This should accelerate the rate of share gains for T-Mobile US Inc., at the expense of the incumbents."

T-Mobile promo

In March 2013, T-Mobile became the first carrier to use financing combined with lower-priced service plans. The offer took hold with consumers as T-Mobile sacrificed profit to gain market share. Larger rivals have been forced to respond and industry margins have been squeezed.

In response to Apple’s announcement Wednesday, T-Mobile introduced an iPhone leasing programme for $20 a month over 18 months, with the option to upgrade the phone “whenever you want," according to a statement Thursday. The promotion starts Saturday at midnight on iPhone pre-orders.

“We love this," Mike Sievert, T-Mobile’s chief operating officer said in an e-mailed statement regarding Apple’s leasing and financing plans. “Anything that gives customers total choice is a win for them and it is a win for T-Mobile. Unlocked phones give consumers the freedom to try out any carrier. That is a fantastic thing for T-Mobile too."

Sales boost

For Apple, financing and leasing could benefit the tech giant in several ways.

For starters, the Upgrade Programme could yield a sales increase of 5 million to 7 million iPhones a year, Macquarie Securities USA Inc. analyst Kevin Smithen wrote last week.

Apple will also gain more control over the recovery and resale of used iPhones in the US and internationally, and the carriers would be relieved of maintaining inventory of the devices, Smithen said last week.

The benefit of leasing is that consumers can trade in their phone for a new one after a year. With financing, consumers end up owning a relatively good phone at the end of a payment period and are less apt to buy a new one, which has put pressure on sales at phone makers.

“Consumer loyalties probably lie more with smartphone vendors or brands than the carriers," Bloomberg Intelligence analysts John Butler and Matthew Kanterman wrote in a research note Thursday. “This could mean consumers will be more inclined to finance through Apple." Bloomberg

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Published: 10 Sep 2015, 09:08 PM IST
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