Why Apple thinks installment plans could boost iPhone 6 sales
Why Apple announced mixed results ahead of its iPhone 6 launch (Part 4 of 6)
Installment plans are gaining momentum in the U.S. telecom industry
In the prior parts of the series, we discussed Apple’s (AAPL) earnings and how the enterprise sector is driving iPhone sales. We also discussed how tax and regulation issues in Japan slowed iPhone sales there.
But the focus is now on Apple’s next version of the iPhone, the iPhone 6. Apple’s expected to launch the iPhone 6 in September this year. During its conference call to announce fiscal Q3 2014 earnings, Apple’s management mentioned that installment plans are gaining momentum in the U.S. telecom industry. More than three-quarters of all iPhones were sold on this kind of plan in the last quarter.
What is an installment plan?
Installment plans or flexible payment plans are plans for customers who want to upgrade their devices faster or who don’t want to pay the upfront cost of their devices when dealing with a telecom provider. This is the reverse of the traditional smartphone subsidy model, where telecom providers sell smartphones at a highly subsidized price with a two-year contract. To cater to consumers’ needs, telecom providers started installment plans.
For example, Verizon (VZ) introduced the EDGE plan last year. EDGE is an installment plan that lets customers upgrade their smartphones if they pay 50% of the retail cost in six months. EDGE adoption in Q2 2014 was 18%. Verizon expects this adoption to increase to 30% by year end.
Last year, AT&T (T) and T-Mobile (TMUS) introduced similar plans to Verizon’s EDGE. AT&T’s frequent upgrade plan is called “Next.” T-Mobile’s plan is called “Jump.”
How will this shift help Apple?
We discussed why these plans are good for consumers. But these plans will also help Apple when it introduces the iPhone 6 later this year. Users who are already locked in to a two-year plan with competitor smartphones like Samsung’s (SSNLF) can upgrade to the iPhone 6. Using flexible or installment plans, they can avoid paying penalties.
As the chart above shows, users’ adoption of installment plans for the iPhone is far higher than Verizon’s EDGE plan adoption. So this plan should help Apple boost its iPhone 6 sales.
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