Early upgrade programs at US carriers forecast to help grow sales of Apple's iPhone
Apple is likely to see modest gains in iPhone sales in the medium term thanks to early smartphone upgrade programs from major U.S. wireless carriers, one analyst has projected.
Keith Bachman of BMO Capital Markets issued a note to investors on Thursday, a copy of which was provided to AppleInsider, in which he took a closer look at the early upgrade programs from America's two largest wireless providers: AT&T Next and Verizon Edge.
Both plans allow users to upgrade their devices more frequently than every two years, by paying for a new device with monthly installment payments. In his view, both plans are attractive to subscribers who may want to upgrade to new devices every year, and he believes these plans could represent more than 20 percent of subscribers by the end of this year.
If his prediction comes true, Bachman believes it could net Apple an additional 5 million iPhone sales in fiscal year 2014. At an average selling price of $730 among early adopters, Bachman said that would translate to around $3.7 billion of revenue.
Bachman sees AT&T Next and Verizon edge as "modest positives" for Apple, as they shorten users' replacement cycles for buying new iPhones. But those sales would be "pull in from future periods," rather than new iPhone users.
Those predictions may not be as aggressive as some might think, as AT&T indicated that 15 percent of its smartphone customers had already opted in to the company's Next program as of the December 2013 quarter. Bachman's forecast calls for as much as 25 percent of all smartphone users to be on AT&T and Verizon's early upgrade programs by the end of this year.
By increasing the turnover speed of new smartphone purchases, such programs will also result in more refurbished iPhones being available for sale on the market. Bachman believes a majority of those used handsets will be sold overseas.
While he doesn't believe those trade-ins will hurt sales in the U.S., it could have an affect on developing markets, where customers tend to prefer cheaper phones and prepaid plans.
As for the longer term effect of AT&T Next and Verizon Edge, Bachman said they could present challenges for unit growth in the longer term. That's because carriers are looking to put the cost of upgrades on consumers up front, which may make some other, less enthusiastic smartphone buyers reluctant to upgrade as frequently as the current two-year upgrade cycle subsidies allow them to do.
BMO has maintained its "outperform" rating for AAPL stock with a price target of $565.
Keith Bachman of BMO Capital Markets issued a note to investors on Thursday, a copy of which was provided to AppleInsider, in which he took a closer look at the early upgrade programs from America's two largest wireless providers: AT&T Next and Verizon Edge.
Both plans allow users to upgrade their devices more frequently than every two years, by paying for a new device with monthly installment payments. In his view, both plans are attractive to subscribers who may want to upgrade to new devices every year, and he believes these plans could represent more than 20 percent of subscribers by the end of this year.
If his prediction comes true, Bachman believes it could net Apple an additional 5 million iPhone sales in fiscal year 2014. At an average selling price of $730 among early adopters, Bachman said that would translate to around $3.7 billion of revenue.
Bachman sees AT&T Next and Verizon edge as "modest positives" for Apple, as they shorten users' replacement cycles for buying new iPhones. But those sales would be "pull in from future periods," rather than new iPhone users.
Those predictions may not be as aggressive as some might think, as AT&T indicated that 15 percent of its smartphone customers had already opted in to the company's Next program as of the December 2013 quarter. Bachman's forecast calls for as much as 25 percent of all smartphone users to be on AT&T and Verizon's early upgrade programs by the end of this year.
By increasing the turnover speed of new smartphone purchases, such programs will also result in more refurbished iPhones being available for sale on the market. Bachman believes a majority of those used handsets will be sold overseas.
While he doesn't believe those trade-ins will hurt sales in the U.S., it could have an affect on developing markets, where customers tend to prefer cheaper phones and prepaid plans.
As for the longer term effect of AT&T Next and Verizon Edge, Bachman said they could present challenges for unit growth in the longer term. That's because carriers are looking to put the cost of upgrades on consumers up front, which may make some other, less enthusiastic smartphone buyers reluctant to upgrade as frequently as the current two-year upgrade cycle subsidies allow them to do.
BMO has maintained its "outperform" rating for AAPL stock with a price target of $565.
Comments
I paid full price ($849) for my iPhone 5s and two years of T-Mobile $30/mo. comes to $720. For $1569 grand total (plus the tax, I guess, not included there).
Guess some folks got more money than sense.
I hear you, provel. I think it's a matter of cash flow. Similar to buying a $200k home over 30 years. Yep, it'd be great to buy it cash upfront... But most can't do that. That $200k home ends up costing ~$400k over 30 years. (I'm guessing, here)
Best.
Guess some folks got more money than sense.
Everyone is different. It is not a matter of 'more money than sense', in fact it is more likely the opposite. Not everyone wants to part with $850 cash and not everyone wants to be on T-Mobile. Financing a phone over two years makes sense. What doesn't make sense is keeping a subsidized phone longer than the contract unless your carrier has a BYOD discount. That means you really don't have any money or sense.
I think the changes AT&T made will reduce phone sales. I am on the new family share, so now I have the last of my 'subsidized' phones. I never paid the higher monthly fees they have quoted here as I had a family plan, 5 phones and large employee discount. At $50 total per line including taxes I paid about $1500 per phone over two years. Now while I am paying lower prices for my service, I will have to pay full price for my phone making it less attractive. I will hold onto my phones longer now unless they couple the new lower prices with occasional sales.
AT&T is also giving up having me locked in for two years which could be a BIG mistake for them. In a year with no new (subsidized) phones I will no longer be locked into AT&T.
To determine "more money than sense" you have to create a scenario where everything is equal except the cost. As previously noted not everyone has that kind of money on hand to spend in one lump purchase, but there is also the issue with service.
Then there is how subsidizations work in the US. Unlike a mortgage there is no interest rate with carriers for getting the product well under the retail value and if you do pay full price your service costs aren't going to change with most carriers. You just end up paying more up front so why not let them cover most of it.
Just for the hell of it, this year I decided to get my Retina iPad Mini from T-Mobile. I paid nothing up front and it came in the mail and my monthly bills will be the same for the same amount of data. I think I end up paying an additional 30¢ more for the device using this method. I don't think that means I am lacking in sense even if it costing me some cents. That said, I think they raised the free 200MiB/month to 500MiB/month which means I can then pay off my iPad Mini and then dump the additional 500MiB/month plan (which was totaling 700MiB) to save about $20 per month.
edit: I misinterpreted the email they sent me. It's 500MiB/month added to my 500MiB/month plan thus giving me 1GiB/month, plus the 200MiB/month for life for a total of 1.2GiB/month. I did however notice they had a 1GiB/month promotional plan for 2014 for only $10/month so that works.
The flip side to this though is the growth of contract-free BYOD plans, in which the consumer pays the full cost of (or finances) the phone up front. The opaque pricing, and high data and overage charges with these two-year contracts is the primary reason why I did not buy a smartphone until last year after the iPhone 5s came out.
For consumers coming off contract, going to a contract-free plan with the device that they just paid off would save a sizable amount every month. This creates incentive for them to keep their phones longer.
Also, with the actual device cost spelled out and paid for up front, that might serve as a disincentive to frequent upgrades, especially with flagship smartphones. I paid the full $749 cost for a 32 GB 5s. Yes, I save a lot of money every month by going with T-Mobile's $30 100 min/5 GB prepaid plan. But, at the same time, I'm not in any hurry to fork over a huge allotment for a new phone. (Yes, I understand that with trade-in value, I won't pay the full amount the next time)
Yes, I save a lot of money every month by going with T-Mobile's $30 100 min/5 GB prepaid plan
It gets more complicated when you are on AT&T shared minutes family plan. We have multiple devices so it is difficult to switch carriers or modify our upgrade cycle.
They didn't factor in that you never actually own the phone. You have to turn in your old phone for your upgrade. If you buy on contract then you can sell your old iPhone for $300 to $500 after the contract expires. These upgrade plans still don't make sense to me.
It gets more complicated when you are on AT&T shared minutes family plan. We have multiple devices so it is difficult to switch carriers or modify our upgrade cycle.
It is not too hard but it takes sacrificing upgrades. You simply do not upgrade and when the two year period passes per phone you move that line or a few commitment free lines out. If you upgrade a device, that line is re-locked for two years, so you need to resist the urge.
I don't understand why anyone is falling for these "fast update" programs. Over $3000 for two years - that's just INSANE.
I paid full price ($849) for my iPhone 5s and two years of T-Mobile $30/mo. comes to $720. For $1569 grand total (plus the tax, I guess, not included there).
Guess some folks got more money than sense.
It isn't over $3000 for the phone upgrade. Look at the charts. That includes the actual wireless service plan as well and data. If you back those out you are looking at around 400 bucks or so per year for the phone, not $3,000. You paid 849 so you could have upgraded every year for around 400 bucks and got a new phone each time one is released. If you do the same thing and buy your phone outright like you did last time but instead trade it in and upgrade each year (over 2 years) you get a new phone annually for the same price you paid in full give or take.
Looks like the Analyst didn't realize that under a contact there is No 10% Sales tax on the full retail price (650$) but just on the downpayment of ($199). Thus he is overestimating the TCO of the 2y contract by $45
It depends where you are. California has been charging sales tax on the full retail price of phones for a while, even under contract pricing. $199 down plus sales tax on $649 etc. I'm not sure of any other states that do that.
I'm still working to get to 7+ people on my Sprint Framily plan. That'll put the cost for each to as little as $25/month plus phone payment, and includes 1GB of data. I optioned for the $20 unlimited data and annual upgrades. You can option for 3GB of data for $10 more if you don't need unlimited or care about annual upgrades. Add extra if you want tethering... (silly). I'm currently at $45 per line (3 people so far) plus any extras. Sprint also seems to work out pretty good for people with iffy/bad credit. They require a little more of a down payment (like $100 + tax instead of $0 + tax for a 16GB 5S) and add $7.99/month credit fee. You can option for auto-pay and not get charged the credit fee.
And to think Apple wants to jack up their new iPhone 6 pricing by another $100 because of it having a larger display. How perverse is that? Every smartphone company in the world has been selling super-huge display smartphones for a couple of years and only Apple needs to charge more for theirs because it contains a tiny sliver of man-made sapphire. I just hope that $100 is going to being paid for by the carriers and not consumers. Obviously for off-contract iPhones that will just be another $100 for consumers to shell out. I suppose as long as iPhones retain their value over the years, it's OK. I know I'd sooner pay the full amount up front and opt for a lower monthly service fee. That's one thing that credit cards are good for.
It seems odd that Apple make such a statement when they haven't announced an Phone 6. Could you be making shit up in your head by taking an unsubstantiated rumour and then contorting in your head until it becomes anti-Apple rhetoric you now see as an unwavering fact?
1) The iPhone 5S already contains a "tiny sliver of man-made sapphire" and it didn't go up by $100 so may want to try to find a better argument.
2) The Note 3 has a "super-huge display" and it's price is more than the Galaxy S3 and S4 with a "huge display".