Does Apple need a cheaper iPhone to attract entry-level smartphone buyers? T-Mobile may have just found a way to do it for them here in the U.S.
The idea that Apple(s AAPL) needs to produce a phone that attracts buyers that can’t or won’t lay down $200 up front for a smartphone in addition to a monthly carrier contract has been touted as a way for Apple to regain its momentum in smartphones. The thinking is that Apple has nearly saturated the upper end of the market in established markets, causing its yearly iPhone sales growth to slow somewhat. The real growth, some say, will come when Apple convinces people who’d otherwise opt for the cheapest phone that comes with their plan to buy an iPhone instead.
T-Mobile’s headline-grabbing $99 unlocked iPhone 5 may be one way of getting there. When you do the math — the $99 upfront payment T-Mobile requires plus 24 months of monthly payments at $20 — the total adds up to $580. That’s less than the $650 Apple charges for an iPhone that’s not locked to a specific carrier. And in addition to those savings, T-Mobile is also offering cheaper monthly plans, as my colleague Kevin Fitchard has detailed.
For some people these prices will put the iPhone in their grasp. But it’s still not exactly cheap: what T-Mobile is offering is still probably a couple hundred dollars more than what analysts have suggested would count as a true “low-cost” iPhone.
It is actually possible to pay even less for an iPhone from a major U.S. carrier: the nearly 3-year-old iPhone 4 is free on contract in the U.S. and the iPhone 4S is $99 on contract. But T-Mobile is actually making the latest-model iPhone cheaper.
T-Mobile’s plan may stand out from the likes of Verizon, Sprint and AT&T, but if you look outside of the U.S., what it’s doing is not all that novel: it’s just a payment plan. It shifts the cost of the device over two years in place of a higher upfront cost or a subsidized, locked device. If you look at what Apple does in some developing markets like China and India, it looks very similar. Apple has used no-interest or low-interest payment plans as a way of helping give customers, who might not otherwise be able to swing an expensive smartphone, a way in.
At surface level, this plan is about T-Mobile finding a way to attract new customers. But there’s also potentially interesting benefits for Apple too. It doesn’t just get yet another iPhone carrier partner, it might also be getting a new look from U.S. customers from that coveted “lower end of the market” that formerly wouldn’t have considered an iPhone because of the pricier subsidized, locked carrier models.
Apple executives have been careful to say that “cheap” smartphones will never be “the future of Apple’s business.” But maybe, if T-Mobile’s experiment works, more creative pricing plans will be.