Apple financing scheme may unlock US carriers' iPhone plans

Customers will be able to finance unlocked versions of new iPhones through monthly instalments starting at $32, regardless of the carrier they choose

Apple Inc's financing plan for its new iPhones is likely to force US carriers to work harder to win and retain customers.

Apple announced a programme on Wednesday that will allow customers to finance unlocked versions of the new iPhones through monthly instalments starting at $32, regardless of which carrier they choose.

The new plan makes it easier for customers to switch carriers, upending a business model that largely depends on locking in customers for two years through leased plans.

"Simply, carriers must respond by ensuring their instalment plans and terms are competitive versus those from Apple and double down on differentiation based on network and tariff," said Geoff Blaber, an analyst with CCS Insight.

 

T-Mobile US Inc was the first carrier to react to Apple's announcement.

It said on Thursday customers could pre-order an iPhone 6S for $20 a month for 18 months and an iPhone 6S Plus for $24 a month with no down payment, starting on Saturday. 

Freedom from a lock-down period is also expected to result in increased churn for US carriers, working to the advantage of market disruptors such as Sprint and T-Mobile.

Sprint's CEO, Marcelo Claure, speaking at an annual telecom industry trade show, said Apple had copied his company's "iPhone Forever" programme.

The programme, rolled out last month, lets customers upgrade to new a iPhone anytime at $22 per month.

It is unlikely Verizon and AT&T will change plans anytime soon since a majority of their subscribers are on corporate or family plans, which typically see less churn, Wells Fargo analyst Jennifer Fritzsche wrote in a note.

Verizon is the No. 1 carrier for iPhones in the United States.

Marni Walden, Verizon's president of product innovation and new businesses, said the company was not looking to change any policies at the moment.

"What the new programme means for Verizon, we'll have to see but ... we have continued to find ways where we both benefit."

Apple's announcement pressured shares of telecom carriers on Thursday - Sprint Corp closed down 2%. Verizon Communications Inc and AT&T Inc were little changed. Apple shares closed up 2%.

"Investors and carriers are likely wary about whether this is a foot in the door to something potentially much more threatening," MoffettNathanson analyst Craig Moffett said. "As it stands right now, it is still relatively benign."

There is, however, a silver lining.

Handset financing has been a significant drag on the profits of carriers. Apple's plan is expected to ease that burden.

"It simplifies life for the carriers," Morningstar analyst Michael Hodel said.