Apple launched a new iPhone Upgrade Program in the United States last week that enables customers to purchase a new iPhone every year with AppleCare+ warranty coverage included. Eligible customers who sign up for the program will have the full cost of their new iPhone broken down into 24 equal payments of around $30 to $45 per month depending on the model, plus a premium for AppleCare+.
Apple will provide customers enrolled in the iPhone Upgrade Program with an unlocked iPhone each year, allowing them to choose from one of the four major U.S. carriers: AT&T, Verizon, Sprint or T-Mobile. After the first 12 monthly payments, the customer gains the option to trade in their iPhone for a new one and enter into a new 24 month installment plan to pay it off.
A couple of initial responses from the Street last week suggested carriers would maintain leverage with wireless subscribers versus the Apple plan.
It is estimated in the US, the company may sell a million phones though the instalment plan.
An article in Barrons has a view of an impact on Roaming…
The unlocked phones may eat into roaming revenue of carriers:
With Apple providing the financing, there would be no long term contract (service or equipment) with the carrier, furthermore the Apple financed phones will be unlocked. This will make it much easier to switch carriers seamlessly just by replacing the SIM card, something that has been very difficult to do up to now. This could also be a threat to global roaming revenues, as customers can easily insert a new SIM card when they are overseas to avoid paying excessive roaming charges. We believe that T-Mobile may have the most to gain from share shifts, given its late iPhone launch (2013) versus Sprint and Verizon (2011) and AT&T (2007).
Any Apple equipment sales could also hurt the big jump in revenue the carriers have gotten from their accounting treatment of sales through their “equipment installment plans,” or “EIPs”:
Installment plan accounting has allowed the carriers to recognize equipment revenues upfront, which has boosted wireless growth rates in recent quarters. Big four equipment revenues grew 26.4% in 2Q15, while service revenues actually declined 0.7%. Of course, no revenues means no handset expense either. This move could cause industry revenue growth to slow sharply.
Moreover, there’s now a greater possibility of Apple becoming a carrier itself:
The most concerning part of this initiative for the carriers, in our view, is how Apple is building a stronger customer relationship, and is in a better position to play the carriers off against one another, raising fears down the road of Apple as an MVNO / wireless carrier relegating the carriers to dumb pipes. This fear is also present in Google’s Project Fi, and potential moves by the cable companies. For now, we believe Apple would not want to alienate its partners, but this move clearly strengthens Apple’s hand versus the carriers over time.
Source: MacRumours, Barrons, Apple