T-Mobile’s been stirring the pot in recent months, launching an ambitious “Un-carrier” initiative and touting its new unsubsidized strategy. Contrary to popular belief, T-Mobile hasn’t been able to quit subsidies quite yet (they are rather addictive, after all).
I can’t quit you
The magenta carrier has axed service contracts, but is still offering to foot part of the device bill, even if it’s not being entirely forthright about it. I noted the discrepancy between Apple Inc. (NASDAQ:AAPL)‘s retail pricing and T-Mobile’s installment plan totals when the device was announced last month, but now investors have more evidence regarding the arrangement.
For starters, Apple Inc. (NASDAQ:AAPL) now sells T-Mobile iPhones through its own online store, and they’re unlocked and contract-free. These models are sold at full retail pricing of $649 to $849. Unlocked iPhone buyers can choose to have a T-Mobile SIM pre-installed or get one SIM-free. It makes no difference to Apple.
If you mosey on over to T-Mobile’s online storefront and compare full device cost, there’s exactly a $69 difference between its prices and Apple Inc. (NASDAQ:AAPL)’s prices.
|Buy From||16 GB Model||32 GB Model||64 GB Model||Unlocked?|
That missing money has to be coming from somewhere. There are exactly two candidates for who’s covering the difference. Hint: It’s not Apple Inc. (NASDAQ:AAPL).
Not something for nothing
It’s not as if T-Mobile is giving away the $69 for nothing. The vast majority of consumers will opt for the installment plan, and those devices will be locked to T-Mobile’s network while you’re still on the hook for 24 monthly payments. The carrier will unlock the device for you once it’s paid off and you can call it your own. For $69, T-Mobile still has a good shot of getting two years of loyalty, just not through a service contract.
In theory, a customer could go purchase an iPhone from T-Mobile at full price for $580 and have them unlock it immediately and then go use the savings to buy an Apple Wireless Keyboard, but T-Mobile is playing the odds and hoping very few people care enough to do this.
BTIG analyst Walter Piecyk also noticed this difference, and believes it’s a “promotional subsidy within T-Mobile’s new strategy.” Furthermore, Piecyk believes the promotion will expire eventually and T-Mobile iPhones will go back up to full retail pricing, even if they’re available on installment plans.
Been there, done that
T-Mobile actually isn’t the only carrier to offer these types of promotions. Other prepaid carriers do the same.
Leap Wireless International, Inc. (NASDAQ:LEAP)‘ Cricket brand offers a $150 rebate, bringing the entry-level iPhone 5 down to $500. Cricket is also a prepaid carrier with no contracts, and Leap Wireless International, Inc. (NASDAQ:LEAP) absolutely pays subsidies. On the most recent conference all, CFO R. Perley McBride noted that the company has made progress reducing subsidy costs, which were down $24 million sequentially in the fourth quarter. Leap Wireless International, Inc. (NASDAQ:LEAP) still needs to ramp up iPhone selling efforts, since it’s nowhere near on target for its iPhone purchase commitments.