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Apple Inc. (AAPL), T MOBILE US INC (TMUS): Your Cell Phone Isn’t Free

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Everyone knows you have to pay for cell service, but an odd quirk of the U.S. telecom industry has left many believing that cell phones should be either heavily discounted or free. Only those phones have to be paid for, and that has long meant higher monthly cell phone bills. This dynamic could be changing.

Apple Inc. (NASDAQ:AAPL)

A Stalled Technology

Apple Inc. (NASDAQ:AAPL)’s first iPhone was a major advance. And as the company got more adept at making iPhones, it was able to add even more features. Enough changed that customers wanted to upgrade whenever a new iPhone was introduced. But, at the end of the day, would you buy an iPhone every year or two if its $650 cost wasn’t cut down to $199? That’s a hefty bill that Apple Inc. (NASDAQ:AAPL) doesn’t want you to think about.

The problem that Apple and other phone markers are facing today is that the newest cell phones aren’t captivating enough to get people running out to the stores for an upgrade. That’s been dragging down Apple and Samsung shares. Apple Inc. (NASDAQ:AAPL)’s top line continued to trend higher quarter-over-quarter through the first quarter of 2013, but was lower in the June period on weak iPad and computer sales. Despite continued iPhone strength, some have been forecasting a drop in demand for handsets on inventory build ups at Apple Inc. (NASDAQ:AAPL)’s suppliers.

With the shares down some 40% from their all-time highs, however, the risks of a sales slump appear to be factored into Apple’s price. And the price to earnings ratio is around 11, which almost makes Apple Inc. (NASDAQ:AAPL) a value stock. A yield of around 2.8% even provides a floor for the shares should a slowdown actually occur.

Another Headwind

Plans by T MOBILE US INC (NYSE:TMUS) and AT&T Inc. (NYSE:T) could make the cost of an iPhone a bigger issue to deal with than slowing technological advances. With $1.3 billion in revenue in the first quarter (it earned a dime a share), T MOBILE US INC (NYSE:TMUS) is tiny compared to AT&T Inc. (NYSE:T) and its over $31 billion first quarter top line. However, being an also ran can be liberating, too.

After pairing up with MetroPCS, T MOBILE US INC (NYSE:TMUS) has become more aggressive on the marketing front. It’s offering no-contract deals and is working to stop subsidizing phones. The iPhone 5 costs T MOBILE US INC (NYSE:TMUS) customers $146 up front plus 24 “easy” monthly payments of $21. It’s doing the same thing with Samsung’s Galaxy S4.

Some buyers may not realize that they are paying full fare for the phone, but others might not mind since paying in full at T MOBILE US INC (NYSE:TMUS) can help them avoid a two year contract and allows them to get an unlimited use plan. Increasing use of data is a major customer trend in the industry and can result in large cell phone bills if customers aren’t careful with their data use on limited data plans.

Still, there’s little reason to invest in T MOBILE US INC (NYSE:TMUS) at this juncture unless you expect it to be acquired. It’s too small to compete effectively with the industry’s giants. What it is doing, however, is making life hard at AT&T Inc. (NYSE:T).

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