US carriers' move to installment plans seen accelerating iPhone upgrade cycles

Posted:
in iPhone edited August 2015
The shift of U.S. carriers from contract subsidies to installment pricing for smartphones could speed up upgrade cycles for Apple's iPhone, according to a new memo by financial services firm Piper Jaffray.




Such plans let people pay no money down, and more importantly let some people upgrade ahead of a previously standard two-year window, analyst Gene Munster said this week in a research note, a copy of which was provided to AppleInsider. It's estimated that in the third and fourth quarters of last year, 21.4 million and 32.6 million American smartphone owners were on installment plans respectively.

While not all of those people may be eligible for an early upgrade, or choose to take the option if they are, even a portion of them might be enough to invigorate iPhone numbers.

Munster calculated that if 30 percent of people plan to upgrade at the 12-month point, that implies 6.4 million upgrades in the third quarter of 2015, and 9.8 million in the fourth quarter. Assuming U.S. iPhone marketshare of 45 percent in 2015, Apple could theoretically see 2.9 million extra iPhone upgrades in the third quarter and 4.4 million in the fourth quarter. In the June quarter, Apple controlled 44.1 percent of the U.S. market.

Another complicating factor is that because carriers have been rolling out installment plans on a relatively gradual basis, for instance by letting old plans lapse, Apple may not see any sudden surges but rather an overall improvement.

Early upgrades also frequently demand that person trade in their old device, and millions of people trading in year-old iPhones could eat into Apple's own sales of older models, particularly if resold units undercut the company's prices. The net effect though could be to skew Apple's iPhone sales further towards the high-end, increasing the average selling price, Munster commented.

Apple is expected to reveal new phones -- the iPhone 6s, 6s Plus, and possibly a 6c -- as soon as Sept. 9, presumably shipping them later in the month. The devices could be the first iPhones to see a meaningful contribution from people on installments.
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Comments

  • Reply 1 of 76
    mstonemstone Posts: 11,510member

    I think it the new plans will have a negative effect on iPhone sales. People just might keep their phones longer because there is no penalty to do so. Before, the major carriers charged you the same whether you owned your phone or not so people tended to upgraded exactly every two years.

  • Reply 2 of 76
    Quote:

    Originally Posted by sog35 View Post

     

    Yet most in Wall street is saying these installment plans are a negative to Apple because customers will opt for cheaper Android phones once they find out iPhones don't cost $199 but rather $650.

     

     

    I say hogwash.  Most customers don't care.   All they care about is their monthly payment.

     

    iPhone with installment plan will cost about $70

    Android with installment plan will cost about $57

     

    People don't care.  They want the nice shinny iPhone.  As long as they don't have to pay the $650 upfront it won't matter.




    I am not sure. If what you say is true, then why people choose Android in the first place? So price does play a role for some. Question is how big that percentage is. OTOH I agree that someone who can afford $57 probably will also be able to pay $70. And yes, people never think of total cost of ownership, just about monthly installments, even if from a 0% interest POV this might actually make sense to go through installments instead of paying upfront. 

     

    On a sidenote; I wonder how Apple will announce the pricing of the next models during the introduction. Jut full price? Or still 0$, 99$ etc based on subsidized contracts?

  • Reply 3 of 76
    rogifanrogifan Posts: 10,669member
    I just checked out Verizon's site. LG G4 is $23/mo. Galaxy S6 is $24/mo. Nexus 6 is $27/mo. iPhone 6 is $27/mo. AT&T prices are similar. I think this is actually beneficial to Apple. People will look at prices and see that iPhone is only a couple dollars more each month or in some cases the exact same monthly price. I think it will put to bed this notion that iPhones are so much more expensive than the competition.
  • Reply 4 of 76
    rogifanrogifan Posts: 10,669member
    mstone wrote: »
    I think it the new plans will have a negative effect on iPhone sales. People just might keep their phones longer because there is no penalty to do so. Before, the major carriers charged you the same whether you owned your phone or not so people tended to upgraded exactly every two years.

    Except now they have plans that allows you to upgrade more frequently and your only out of pocket expense is tax (at least that's how the AT&T Next program works).
  • Reply 5 of 76
    taniwhataniwha Posts: 347member
    Quote:

    Originally Posted by sog35 View Post

     
    Quote:
    Originally Posted by mstone View Post

     

    I think it the new plans will have a negative effect on iPhone sales. People just might keep their phones longer because there is no penalty to do so. Before, the major carriers charged you the same whether you owned your phone or not so people tended to upgraded exactly every two years.


     

    Nah.  If you have a 4s, 5, or 5s those phones look really old and outdated now.  

     

    Smartphones are the most important product people own.  Not cars. Not homes.  Not TV's.  Not laptops.  People's lives are in their smartphones.  I doubt most people will be willing to hold on to an old phone for much longer than 2 years.

     

    Getting an new iPhone would cost about $350-$450 after trade in.  If you hold on to that phone for 2 years that's only about 99 cents a day.  Compare that to a car which costs 10x more than that.


    "Smartphones are the most important product people own.  Not cars. Not homes.  Not TV's.  Not laptops."

     

    Bullshit .. maybe for you. Not for the majority by a long haul 

  • Reply 6 of 76
    I really like eh new plans. Because if them I upgraded from 35 gig 5s to a 126 gig 6 early.
  • Reply 7 of 76
    mstonemstone Posts: 11,510member
    Quote:

    Originally Posted by Rogifan View Post





    Except now they have plans that allows you to upgrade more frequently and your only out of pocket expense is tax (at least that's how the AT&T Next program works).



    Perhaps because the plans are so confusing people think they are getting a good deal when the truth is the AT&T Next still has the same contracts. Personally I like the new Verizon plans because it it is plain and simple to understand. That AT&T Mobile Share is crazy complicated.

  • Reply 8 of 76

    It seems the upgrade cycle for smartphones will slow because the hardware and software is maturing. An older phone is good enough for a lot of people for a longer period of time. Just like with PC's and tablets.

     

    As the hardware and software gets better and better, the time between upgrades gets longer and longer. 

  • Reply 9 of 76
    Quote:

    Originally Posted by Rogifan View Post

     
    Quote:

    Originally Posted by mstone View Post



    I think it the new plans will have a negative effect on iPhone sales. People just might keep their phones longer because there is no penalty to do so. Before, the major carriers charged you the same whether you owned your phone or not so people tended to upgraded exactly every two years.




    Except now they have plans that allows you to upgrade more frequently and your only out of pocket expense is tax (at least that's how the AT&T Next program works).

    Don't ATT and Verizon usually also charge a one-time "reconnection" or "changing handset" fee of some kind?

  • Reply 10 of 76
    rogifanrogifan Posts: 10,669member
    sog35 wrote: »
    Exactly.

    People only care about the monthly price.  $2-$4 more for an iPhone won't scare anyone away.


    Now if you think people will switch from a LG/Galaxy/iPhone to a POS Xiaomi phone that is a different story.  But I think 90% of premium phone users will not downgrade to a POS generic phone.

    For Apple to grow sales all they need to do is capture the 250,000,000-350,000,000 current Android premium buyers who will be eligible for upgrade in the next 12 months.

    I never understood all the worry around this with respect to iPhone. Nobody was giving you anything. Included in the price of your monthly bill was paying off the phone. You're doing the same thing now except it's explicit.

    I think this is the way to present to consumers. I always thought this subsidy lingo was a joke. Paying something off over time doesn't equal subsidy. Nobody says the auto industry subsidizes cars, or your new furniture or hardwood floors were subsidized by the companies you bought them from. There's lots of things people buy every day where they don't pay the full cost up front; furniture, appliances, flooring, cars, jewelry, etc. Considering how quickly phone improve, leasing is the way to go IMO. Plus with these plans you still have the option to keep the phone until it's fully paid off so you can resell it rather than giving it back to the telco.
  • Reply 11 of 76
    rogifanrogifan Posts: 10,669member
    mstone wrote: »

    Perhaps because the plans are so confusing people think they are getting a good deal when the truth is the AT&T Next still has the same contracts. Personally I like the new Verizon plans because it it is plain and simple to understand. That AT&T Mobile Share is crazy complicated.

    Yeah I'm not defending the plans in terms of overall complexity. I just prefer being presented with phone X is going to cost you $25/mo vs. get this phone for only $199 down. At least now you know how much of your bill is voice + data and how much is paying off the phone.
  • Reply 12 of 76
    john.bjohn.b Posts: 2,717member

    I've said this before, but anything to make the costs transparent to the customer benefits the customer.  The "subsidized phone" model hides the cost of the phone but it also hides the cost of the subsidy and many people don't understand that, after 24 months, they are paying a subsidy for nothing if they don't upgrade to a new phone.  This puts an end to that. 

     

    My guess is that iPhone users that decide to buy an Android will be back on an iPhone in short order.

  • Reply 13 of 76
    mstonemstone Posts: 11,510member
    Quote:
    Originally Posted by Rogifan View Post



    Plus with these plans you still have the option to keep the phone until it's fully paid off so you can resell it rather than giving it back to the telco.

    I'm surprised the telcos even want the old phone back. They seem to be trying to get out of the phone financing business with these new plans by encouraging you to bring your own phone or pay full price up front. What are they going to do with the old phone?

  • Reply 14 of 76
    lkrupplkrupp Posts: 6,789member

    The predictions of resident AI pundits are about as accurate as the analysts they excoriate. Nuff said.

  • Reply 15 of 76
    sog35 wrote: »
    mstone wrote: »
     


    Perhaps because the plans are so confusing people think they are getting a good deal when the truth is the AT

    ignorance is bliss.

    But who really cares?  As long as you can afford the monthly payment why worry about it?  That's how 90% of the population feel.

    If saving money was so important most people would pay off their creditcard bill each month.

    Savvy people do -- you get 1 month of free float on your purchases, plus rewards.
  • Reply 16 of 76
    rogifanrogifan Posts: 10,669member
    mstone wrote: »
    I'm surprised the telcos even want the old phone back. They seem to be trying to get out of the phone financing business with these new plans by encouraging you to bring your own phone or pay full price up front. What are they going to do with the old phone?

    How come then when you go on AT&T or Verizon's website the first option presented is monthly device payment, not full retail price? And T-Mobile's site has $0 down plastered everywhere. I'm just not seeing much evidence on their websites of pushing the full retail price.
  • Reply 17 of 76
    Quote:

    Originally Posted by sog35 View Post

     

     

    Nah.  If you have a 4s, 5, or 5s those phones look really old and outdated now.  

     

    Smartphones are the most important product people own.  Not cars. Not homes.  Not TV's.  Not laptops.  People's lives are in their smartphones.  I doubt most people will be willing to hold on to an old phone for much longer than 2 years.

     

    Getting an new iPhone would cost about $350-$450 after trade in.  If you hold on to that phone for 2 years that's only about 99 cents a day.  Compare that to a car which costs 10x more than that.




    Unlike now people will see their cell phone bill drop after two years if they are on an installment plan. Under a contract they don't. It will push out upgrades. This will happen even more so with an "S' model because they are nearly identical in appearance. Not to mention if kids are on their parents plan the parents will slow down the upgrade for the kids. 

     

    There's only so much Apple can do to make the iPhone look different. They aren't going to make them bigger, they aren't going back to a 4" display, making them thinner is unlikely in fact with Force Touch it make be slightly thicker. The three color options are most likely hear to stay. So that old phone may not look that much different then the new phone. For teens as long as they can text and use social networking they could really care less, as for those of us that are older I can assure you our homes and cars rank well above and iPhone. 

  • Reply 18 of 76
    Quote:

    Originally Posted by Rogifan View Post





    How come then when you go on AT&T or Verizon's website the first option presented is monthly device payment, not full retail price? And T-Mobile's site has $0 down plastered everywhere. I'm just not seeing much evidence on their websites of pushing the full retail price.



    The full retail price is simply divided over 24 months. For Verizon, ATT and T-Mobile the only options are playing full price upfront or they allow you to spread it out over 24 months. You can pay if off faster but they will give you up to 24 months.

  • Reply 19 of 76
    sog35 wrote: »
    Savvy people do -- you get 1 month of free float on your purchases, plus rewards.

    but most people don't.  Most people have an unpaid balance each month.

    Most people live paycheck to paycheck.  They don't care that an iPhone cost $650.  All they care about is if they can afford the $70 monthly payment.

    I suspect that there are quite a few people here, that don't carry an unpaid balance on their cards.

    It may be a generational difference, though -- many millennials seem to act as they're self-entitled to instant gratification.
  • Reply 20 of 76
    Everybody always paid full price for the phone. Those two year contracts were higher priced
    to make up for the difference. Does anyone really think they got a $650 phone for $199?
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