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Leap estimated to pay Apple $150 subsidy for contract-free $500 iPhone 4S

post #1 of 12
Thread Starter 
For customers who buy a $500 contract-free iPhone 4S through carrier Cricket Communications, its parent company, Leap Wireless, is likely to still pay a subsidy of about $150 to achieve that price.

Currently, a contract-free 16-gigabyte iPhone 4S through the Apple Store or AT&T costs $649. That led analyst Brian Marshall with ISI Group to estimate that Leap is subsidizing the phone by about $150 to offer it at a contract-free price of $500.

Of course traditional carriers like AT&T, Verizon and Sprint offer much heavier subsidies to get the price of the 16-gigabyte iPhone 4S down to $199, but that price comes with a two-year service agreement. Cricket Communications is a prepaid carrier that advertises "unlimited" service at a price of $55 per month.

Though the $500 iPhone 4S through Cricket carriers a higher up-front cost, Marshall estimates the carrier's relatively inexpensive $55-per-month plan will allow customers to break even in about six months when compared to a traditional carrier's $199 subsidized price and higher monthly payments.

For example, comparable voice and data plans from AT&T and Verizon can cost a single user more than $100 per month, so a savings of $50 per month with Cricket would amount to $300 in savings in the first six months. That $300 amount also happens to be the price difference between a 16-gigabyte iPhone 4S at Cricket versus traditional U.S. carriers.

Cricket 2


Because of the low-priced monthly prepaid plan, Marshall believes the iPhone on Cricket could gain traction among customers, "depending on quality of service." If so, it would represent sales in a new, previously untapped market for Apple.

Leap announced earlier Thursday that Cricket would begin offering the iPhone 4S and iPhone 4 starting June 22. The relatively small carrier with 6.2 million customers offers "unlimited" data plans under a "fair usage policy" that allots 2.3 gigabytes of data per month.

Cricket's voice and data services operate on a 3G CDMA network, like Verizon and Sprint. Its parent company, Leap, owns the seventh-largest wireless telecom network in the U.S., and offers coverage in all 50 states.
post #2 of 12

And so it begins...

post #3 of 12
Quote:
Originally Posted by bigmike View Post
And so it begins...

 

What? There have been US PAYG iPhones for a while.

 

Even ones without data, I think.

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Originally Posted by asdasd

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post #4 of 12

Should be nice to see how it works out for Cricket - I know they're not doing well and their stock has been falling a lot.

 

Open Mobile in Puerto Rico also sells the iPhone without a contract, but it seems they subsidize the phone a bit more, but in exchange charge a bit more for their plan ($70/month). It seems they're a CDMA carrier, too, like Cricket.

post #5 of 12

The big question is, is it unlocked? Could you use it on AT&T or foreign GSM carriers?

post #6 of 12

I don't understand the use of the word 'subsidy' in such contexts. Unless an activity makes money in the aggregate and over time -- after all the spillover effects, synergies, option effects, etc are considered -- why would any rational profit-making business willingly and knowingly get into it?

 

If it would not be so stupid, where the heck is a 'subsidy' involved?

post #7 of 12

You need to be real careful about what is "unlocked". Here is a great article that deals with that indepth: http://www.forbes.com/sites/marcwebertobias/2011/12/22/how-u-s-carriers-fool-you-into-thinking-your-iphone-4s-is-unlocked/2/

post #8 of 12
Quote:
Originally Posted by anantksundaram View Post

I don't understand the use of the word 'subsidy' in such contexts. Unless an activity makes money in the aggregate and over time -- after all the spillover effects, synergies, option effects, etc are considered -- why would any rational profit-making business willingly and knowingly get into it?

If it would not be so stupid, where the heck is a 'subsidy' involved?

Razor vs Razor Blades. Long-term cash flow is more valuable than a one-off purchase.
post #9 of 12
Quote:
Originally Posted by anantksundaram View Post

I don't understand the use of the word 'subsidy' in such contexts. Unless an activity makes money in the aggregate and over time -- after all the spillover effects, synergies, option effects, etc are considered -- why would any rational profit-making business willingly and knowingly get into it?

If it would not be so stupid, where the heck is a 'subsidy' involved?

Think of it as a marketing cost. There are a lot of marketing deals where they give you something free in order to get you in the door - in the hopes that you'll buy the product or service. As long as a large enough number of people buy the service to pay for the promotional deal, it's profitable.

In the case of prepaid phones, I would think that the vast majority of people would stick with Leap (in this case) - especially since they're limited in who they could switch to. Furthermore, if they really did want to use Verizon or Sprint, it would make sense to sign up with them from the start and get a $199 phone instead of paying $500.

It should be pretty low risk.
"I'm way over my head when it comes to technical issues like this"
Gatorguy 5/31/13
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"I'm way over my head when it comes to technical issues like this"
Gatorguy 5/31/13
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post #10 of 12
Quote:
Originally Posted by aaarrrgggh View Post


Razor vs Razor Blades. Long-term cash flow is more valuable than a one-off purchase.

 

Quote:
Originally Posted by jragosta View Post


Think of it as a marketing cost. There are a lot of marketing deals where they give you something free in order to get you in the door - in the hopes that you'll buy the product or service. As long as a large enough number of people buy the service to pay for the promotional deal, it's profitable.
In the case of prepaid phones, I would think that the vast majority of people would stick with Leap (in this case) - especially since they're limited in who they could switch to. Furthermore, if they really did want to use Verizon or Sprint, it would make sense to sign up with them from the start and get a $199 phone instead of paying $500.
It should be pretty low risk.

 

I think that you both may have missed the part in my post where I specifically said: "in the aggregate and over time -- after all the spillover effects, synergies, option effects, etc are considered....."

 

Oh well.

post #11 of 12
Quote:
Originally Posted by nwtrekker View Post

You need to be real careful about what is "unlocked". Here is a great article that deals with that indepth: http://www.forbes.com/sites/marcwebertobias/2011/12/22/how-u-s-carriers-fool-you-into-thinking-your-iphone-4s-is-unlocked/2/

 

Thank you for posting this.  Great article.

No Matte == No Sale :-(
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No Matte == No Sale :-(
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post #12 of 12
Quote:
Originally Posted by AppleInsider View Post

For customers who buy a $500 contract-free iPhone 4S through carrier Cricket Communications, its parent company, Leap Wireless, is likely to still pay a subsidy of about $150 to achieve that price.
...

 

 

Congratulations to the shareholders!

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