The arrival of Apple Inc.’s (AAPL) iPhone 6 has opened up doors for Verizon Communications (VZ) to devise yet another contract plan to attract new and existing customers.
The company is now offering iPhone 6 to customers under a two-year contract in exchange for their old iPhones. According to reports, the new ‘trade in old model’ offer by Verizon makes the latest iPhone almost free against a two-year contract.
The offer entails a $200 gift voucher that can be spent toward purchasing the basic 16-gigabyte version of the iPhone 6, which comes in at $199.99.
We believe the current promotional offer is a strategic one by Verizon that banks on the popularity of the Apple brand to bring in more customers under the carrier’s wings. This would, in turn, ensure significant incremental revenues at the company’s wireless services segment.
While Verizon is busy promoting its 2-year contract plus a free iPhone 6, Sprint Corp. (S) has also come up with its new $50 unlimited plan offering clubbed with iPhone 6. In addition, Sprint’s new campaign “iPhone for life” adopts a new strategy of allowing customers to own a new iPhone every two years upon signing up such contracts. According to reports, the new promotional strategy will potentially allow Sprint to win back customers lost to rival T-Mobile US Inc. (TMUS).
For $20 per month, Sprint is offering customers a basic 16 GB iPhone 6 beginning Sep 19, which they can trade in 24 months time from now for the latest iPhone Apple releases at that time. This amounts to $480 in device payments. Technically, it represents paying more for the iPhone in installments rather than getting it free of cost.
Customers can also select the option of financing the phone over two years for $30 a month after a $58 down payment or else settle for a two-year contract and pay monthly instalments of $20.
However, according to reports Sprint’s current plan is much lower in comparison to the plans that offer iPhones at a hefty $85 per month installment, which amounts to $1040 for a two-year plan. Sprint maintains that its $20 installment is a huge slash from the conventional plans and promises greater value for customers.
With the iPhone 6 grabbing all the attention, we expect more operators to join the bandwagon; we thus foresee more such competitive promotional offers in the coming. However, while they may lead to incremental revenues arising from new subscribers, it does call for a reality check for the operators whose profit margins may suffer given hefty waivers on equipment sales.
With the wireless market becoming increasingly saturated, only time will tell how profitable the iPhone 6 turns out be for telecom carriers, given that several such equipment launches and promotional offers hit the streets every month. However, the upcoming quarterly results will mirror the true financial picture of these carriers post the iPhone 6 promotion, making actual gains and losses more vivid for the companies and investors.
Verizon and Sprint currently have a Zacks Rank #3 (Hold).
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