What should be a smartphone with a base price of $399 is being offered by Verizon Communications Inc. (NYSE: VZ) for free. The ultra-premium iPhone 6 (16GB in this case) is not premium at all, based on the decision of the huge wireless carrier. The action hurts Apple’s image as a provider of the best of the best products in the smartphone universe, which will cascade to consumer expectations about other products from the world’s largest consumer electronics company.
Source: Apple Inc.
Verizon made the move because it is desperate to protect its 103 million subscribers. New, inexpensive scorched-earth pricing by rivals like T-Mobile US Inc. (NASDAQ: TMUS) and Sprint Corp. (NYSE: S) threaten Verizon’s normally loyal customer base and help offset its claim to have the best 4G network. Verizon’s only option to combat this trend is to offer free versions of premium smartphones, even though its ever-falling rates for voice, text and data hurt its revenue. What were supposed to be profits to support a dying landline business are suddenly embattled.
The deal to get a free iPhone 6 is simple. Take a two-year subscription to Verizon’s wireless service and turn in an older iPhone. The value of that iPhone to Verizon may be in the hundreds of dollars, based on the version. To get an idea of what the iPhone 6 is worth without the subscriber arrangement, Verizon sells the iPhone 6 with a 4.7-inch screen for $649.99 and the iPhone 6 Plus with a 5.5-inch screen for $749.99. Verizon almost certainly pays more than that for the smartphones, which means it is giving away a pricey iPhone 6 to tether people to long-term contracts. If the customers do not renew their two-year contract, the deal could lose Verizon money.
Regardless of Verizon’s reasons, almost any free product that is supposed to be very valuable to consumers undermines its premium image. People will expect the iPhone 6 to be free no matter where they get it. If AT&T Inc. (NYSE: T) and smaller carriers match the Verizon price, that expectation will come true. With that, the iPhone 6 will hardly be a premium product at all.
READ ALSO: What the iPhone 6 Was Supposed to Have, but Didn’t
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