Prepaid iPhone Threatens Larger Carriers
Rajesh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Since its debut in 2007, the Apple (NASDAQ: AAPL) iPhone for the first time is available without any contract obligation. This Friday, Leap Wireless (NASDAQ: LEAP), as slated, became the first prepaid carrier making the iPhone 4 and iPhone 4S accessible under its Cricket brand on a prepaid basis. The wireless provider is offering both the devices in white and black variations in its own stores and through selected dealers in 60 markets.
Apple is impressed by the effort undertaken by the carrier to offer the smartphone to the audience which had long coveted its possession without having to enter into the two-year contract. The opportunity to have the iPhone without having long term obligation will draw a large number of customers. In fact many buyers had queued to get the iPhone 4S even before the store opened on Friday morning. Not only Leap, fellow carrier Sprint (NYSE: S) is also going to roll out the iPhone under prepaid terms starting June 29.
The price charged by the carrier
Leap is charging $399.99 for the 8GB iPhone 4. The 16GB iPhone 4S will cost $499.99, which is $150 less than the price charged for the unlocked version of this model. As of now, the carrier has only one prepaid plan costing $55 a month which offers unlimited calling, texting and data usage. However, the data speed is throttled and brought down to 100kbps once a customer consumes 2.3GB of data in a month.
Sprint’s offering
Sprint, which is going to join the prepaid iPhone league on June 29, will sell both the models at same prices as charged by Apple for the unlocked version. The carrier will charge $549 for the 8GB iPhone 4 model and $649 for the 16GB version of iPhone 4S.
The prices charged may be higher than Leap’s offer, but the monthly plans come much cheaper starting at $30 per month. At $30 a month, customers will get 300 minutes of talk time with unlimited texting and data. The next higher plan for $40 a month gives 1200 calling minutes to the users and the Everything Unlimited monthly plan comes at $50 per month.
The Biggies are feeling the pinch
The prepaid offering is extremely attractive for customers and is going to give stiff competition to the traditional postpaid carriers. Already the biggies are feeling the pinch as their bottom-lines are getting affected. Postpaid plans may be very popular as it provides better quality phones compared to the prepaid plans; however, the difficult economic environment and contracted income levels have made the no-contract cheaper plans more feasible. This is clear from the slow growth of postpaid subscribers, which was only one percent for the first quarter of 2012.
The prepaid iPhone plan of Leap and Sprint are much more reasonable in comparison to AT&T’s (NYSE: T) cheapest offer at $60 per month. Also, you don’t have to enter into a two-year commitment or credit checks which major carriers such as Verizon (NYSE: VZ) and AT&T ask for. As a measure, these traditional postpaid carriers are revamping their phone plans. Verizon has already come up with the Share Everything family plan to share data with 10 devices, while AT&T is considering adding a new data plan soon.
My takeaway
Things are taking an interesting turn with the introduction of the prepaid iPhone offer by Leap and Sprint. The shifting dynamics in the industry are threatening the top-lines of the larger carriers. How are the biggies planning to answer remains a question. Will they continue innovating service bundles to tap the consumers, or look for consolidation with prepaid carriers to get exposure to the prepaid segment?
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