Why T-Mobile's iPhone Plan Is Seeing High Demand
T-Mobile's (TMUS) shares have traded up due to demand for the new Apple (AAPL) iPhone 6s. The volume poured in as the carrier introduced a plan of just $5 per month to lure buyers seeking to trade in their iPhones for the upgraded model.
The new offer is part of T-Mobile's aggressive approach of expanding its market share by trimming prices, which is one of the most effective ways of increasing the subscriber base.
Too good to resist
The iPhone 6s and 6s Plus will hit T-Mobile stores on Friday. This will also mark the beginning of another battle among the four national wireless providers in the U.S. T-Mobile's iPhone upgrade plan allows subscribers to have the iPhone 6s with 16 GB for a monthly lease payment of $5 by trading in their iPhone 6, 6 Plus, Galaxy S6 Edge or Note 5. For customers trading in the iPhone 5 or Galaxy S5, the monthly fee will be $10 and for those with older smartphones, the payment will be $15 per month. Buyers with no trade-in will pay $20 per month.
If subscribers continue to pay the lease installment for 18 months, they will have the option of getting the phone at a discount of $125, less the payment made during the period. That compares with the discount of $450 that Verizon (VZ) and AT&T (NYSE:T) used to provide by binding customers to a two-year contract.
T-Mobile's Jump on Demand plan enables customers to upgrade phones three times a year by trading in their current phones. Such lease plans are quite attractive for users who wish to upgrade their phones every year.
Battling competition
Verizon and AT&T are also offering financing options so customers don't have to pay the entire amount upfront to own the new phone. Verizon is offering the iPhone for a monthly payment of $27 for 24 months, while AT&T is offering it for a monthly payment of $21 for 30 months. The two financing options offer virtually no discount on the iPhone 6s' $649 price. Sprint' (NYSE:S) $15-a-month lease plan for 22 months comes closest to T-Mobile's. Sprint subscribers would have to pay the instalment for 22 months and then have the option of keeping the phone by paying the remaining balance.
However, none of the plans are as attractive as T-Mobile's offer. In the words of T-Mobile President and CEO John Legere, "With these incredible $5 and $10 a month deals, we're giving customers just one more reason to come to T-Mobile."
T-Mobile's move follows Apple's announcement of launching an installment plan for prospective buyers wanting an iPhone without having to pay the retail price up front. As competition for larger wireless market share intensifies, consumers may expect to see more options coming in their favor.
This article first appeared on GuruFocus.
