T-Mobile has yet to provide specific details on its deal to begin selling Apple products this year, but its plan to eliminate subsidies and provide users with the ability to purchase devices with monthly installments in the next three months is getting a lot of attention. We assume this offer of purchasing a smartphone through $15 to $20 installments for 20 months will extend to the iPhone, as T-Mobile USA CEO John Legere recently hinted. According to Reuters, who recently spoke with the CEOs of Verizon and AT&T, the other major iPhone carriers are very intrigued by the strategy.
AT&T CEO Randall Stephenson told Reuters he likes the idea and would keep a close eye on T-Mobile’s strategy:
Randall Stephenson, CEO of AT&T, Apple’s first partner for the iPhone, applauds T-Mobile USA’s idea. “That’s something we’ve looked at on several occasions. I kind of like that idea,” Stephenson said. “It’s something we’re going to be watching.”
Verizon CEO Lowell McAdam told Reuters T-Mobile USA’s strategy is “very intriguing,” but wondered if consumers are ready to pay full price.
Reuters also noted, despite subsidies, Apple’s ability to maintain roughly 40-percent margins is due to its “ability to extract low prices from the makers of chips and other components.” An unnamed executive at one of Apple’s suppliers told the publication that working with Apple is “a double-edged sword”:
Selling to Apple is “a double-edged sword,” said the executive, who was not authorized to discuss his company’s relationship with Apple. Having Apple as a customer guarantees huge volumes, but comes at the cost of accepting rock bottom prices that can cripple profit margins, the executive said.
T-Mobile CEO John Legere told Reuters its deal with Apple would not be “as onerous as Sprint Nextel’s commitment to pay $15.5 billion over four years.” The theory is: T-Mobile’s new strategy, if successful, in combination with increased competition from lower-cost devices, could lead to tougher negotiations between Apple and carriers and possibly cut into Apple’s margins.
Fran Shammo, chief financial officer of Verizon Communications, said having four strong platforms – Apple, Android, Windows and BlackBerry – is leading to more competitive pricing. “The more operating systems we have to compete in this area the better the competition,” he told Reuters.