As new iPhone arrives, buyers have more pricing options than ever
Friday's release of the newest iPhone is shaping up to be a turning point for the way Americans pay for cellphones. With the release of Apple Inc.'s iPhone 6 and 6 Plus, consumers can escape the two-year contract in multiple ways, if they choose....
Friday’s release of the newest iPhone is shaping up to be a turning point for the way Americans pay for cellphones.
With the release of Apple Inc.’s iPhone 6 and 6 Plus, consumers can escape the two-year contract in multiple ways, if they choose.
Besides prepaid plans, which accounted for half of all new wireless accounts between 2008 and 2012, carriers and some retailers are offering interest-free installment plans, and “phone for life” plans with unlimited data and automatic upgrades every two years.
In the past, standard plans required users to sign up for two-year service commitments. They paid a lower price for the phone, such as $99 or $199, and the remaining cost of the phone was buried in the fees that cellular service providers charged.
Those plans still dominate the industry, in part because they become lucrative for carriers when, after the two-year period elapses, they keep charging consumers the same monthly fee even though the phone is paid off.
But now, carriers and retailers have started to separate the cost of the phone from the cost of the service in what they’re calling installment billing.
“This is the first time that Apple buyers will be confronted with installment billing,” said Louis Ramirez of Dealnews.com. And it’s a large market considering new options. Although most Android users won’t jump ship, a pool of 100 million customers have been waiting to upgrade from the iPhone 5 and earlier models, said Tim Bajarin, an analyst with Creative Strategies market research in San Jose, Calif.
“The exciting part is the ability to upgrade earlier without penalty,” said Josh Will, senior category officer of mobile phones at Richfield, Minn.-based Best Buy, which has an exclusive on the new installment plans among retailers.
Installment billing allows customers to spread the cost of the iPhone 6 ($649-$849) or 6 Plus ($749-$949) over 20 to 24 months, depending on the carrier. After one year, customers can pay it off in full or trade it in if they want a new model phone. Will said that for almost a decade, consumers have been asking, “Am I upgrade eligible?” when a new phone comes out. “Now we can do better at meeting the customer’s needs,” he said.
Experts say that installment payment plans may be convenient for early adopters who want the latest phone, but they’re not much of a cost savings for most consumers. “It’s the family of four or more that uses a lot of data that will save the most,” Ramirez said. “They can save $10 to $40 per month per phone if they’re using a lot of data.”
In a separate development, some retailers are offering discounts and incentives at the start of a new iPhone generation for the first time, though such deals require the two-year contract.
For instance, Wal-Mart is selling the 16GB iPhone 6 for $179 with a two-year contract, a $20 savings. Those who preorder the phone will also get a $15 Wal-Mart e-gift card. The iPhone 6 Plus also gets a $20 discount, $279 for the 16 GB model. At Sam’s Club, which is owned by Wal-Mart, members can save $2 more per phone at $177 and $277 for the 6 and 6 Plus with a two-year contract.
Best Buy and Target are not lowering the price but are offering trade-in specials. Best Buy customers choosing the installment plan with AT&T, Sprint or Verizon and trading in a 5s pay little or nothing down for a new iPhone 6 and get a $300 Best Buy gift card. Those trading in a 5s who want the two-year contract with AT&T, Sprint or Verizon receive a free 16 GB iPhone 6 and a $100 Best Buy gift card.
Target is offering up to $200 for trading in a 5s, up to $100 for a 5 or 5c, up to $75 for a 4s, and up to $50 for 4. Prices on the new iPhones are not discounted.
Besides installment billing, carriers continue to find creative ways to soften the contract blow. Sprint announced an “iPhone for Life Plan” that includes unlimited data for $50 a month. The plan is unique because the consumer leases the phone from Sprint instead of buying it. The 16GB iPhone 6 can be leased for $0 down and $20 a month for a total cost per month of lease and data at $70.
T-Mobile is taking a more aggressive approach. The carrier stopped offering contracts early last year, allowing customers the ability to leave whenever they want. Ramirez said he thinks
T-Mobile’s deal at $50 a month for 1 GB of data plus the monthly installment of $27.08 for 24 months on a 16 GB iPhone 6 will be one of the best deals out there. “T-Mobile has a lot of perks from unlimited talk, text and Web to free music apps,” he said.
It’s part of a broader approach T-Mobile calls “the un-carrier” that is more like the way that cellphones are sold in the rest of the world: without contracts and subsidies that obscure the cost of the phone and the service.
“Folks are electing to do this because they’re more in control,” said Martin Pisciotti, T-Mobile vice president of a 16-state region that includes Minnesota. As fees are stripped away and costs become more clear, he said customers become more confident about using the phone whenever they want.
For the not-so-early adopters who still want contracts, however, another moment for deal-making is near.
“If you can resist the temptation to buy the iPhone 6 when it’s launched, Black Friday will be a much better time to pick one up,” Brad Wilson of Bradsdeals.com stated in an e-mail. “Look for the usual array of somewhat discounted phones bundled with gift cards and requiring a two-year contract.”