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Apple's new iPhone Financing Plans Puts Pressure on Telecoms

1A 88 COVER IPHONE UPGRADE PROGRAM

REPORT UPDATED 9/11/20155:24 AM MST

It's being reported today that Apple's new financing plan for its latest iPhones is likely to force U.S. carriers to work harder to win and retain customers. Apple announced a program on Wednesday that will allow customers to finance unlocked versions of the new iPhones through monthly installments starting at $32/mo., regardless of which carrier they choose.

 

UPDATE 9/11/2015 5:24 AM MST: In the beginning the 'iPhone Upgrade Program' will only be available in U.S. Apple Stores - with the offer eventually expanding around the globe with no mention of specific times. You could hear it for yourself in Apple's event video starting at around the 1hr and 59 minute mark.  The added benefit of this program is that you can upgrade your iPhone every year and it includes AppleCare+ as noted in the slide below. 

 

2af 77 iPhone Upgrade program U

Apple further introduced a plan where customers could pre-order an iPhone 6S for $20 a month for 18 months and an iPhone 6S Plus for $24 a month with no down payment, starting on Saturday.

 

The new plan makes it easier for customers to switch carriers, upending a business model that largely depends on locking in customers for two years through leased plans.

 

Geoff Blaber, an analyst with CCS Insight stated that "Simply, carriers must respond by ensuring their installment plans and terms are competitive versus those from Apple and double down on differentiation based on network and tariff."

 

MoffettNathanson analyst Craig Moffett chimed in by telling Reuters that "Investors and carriers are likely wary about whether this is a foot in the door to something potentially much more threatening. As it stands right now, it is still relatively benign." For more on this story and the first reactions from the carriers, read the full Reuters report.

 

On the flipside, handset financing has been a significant drag on the profits of carriers. Apple's plan is expected to ease that burden. This could also be big news in markets like China and Korea where subsidies have been a divisive issue for years.

 

In 2014 we reported that the issue with smartphone subsidy cuts were heating up in China. Earlier in 2013 Lenovo wanted subsidies for the iPhone scrapped. Lenovo's CEO Yang Yuanging urged telecom operators to decrease their subsidies for iPhones and reduce "super-national treatment" for foreign mobile phone makers, including Apple and Samsung.

 

Yet for the richest tech company on the planet, offering new leasing programs is no big deal and in fact could become quite the weapon against competitors like Samsung. In 2013 Samsung admitted that without their higher subsidies their Global Business would seriously suffer.

 

With Apple's plan now open for business, the threat of pulling subsidies for the iPhone is now a non-issue. I'm not quite sure that Samsung could say the same thing at present if subsidies were pulled.

 

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