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5G iPhone resumes subsidy wars, which is good for Apple and consumers, but not for mobile operators

Apple Inc. and consumers are ready to win, as the wireless industry has been offering its most aggressive subsidies to launch smartphones for at least five years, but big discounts could hurt operators.

Consumers are increasingly holding on to their smartphones longer, but some analysts are optimistic that Apple’s AAPL
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The recently announced iPhone 12 family, which features 5G connectivity and a wider range of screen sizes, could trigger a big wave of upgrades. Wireless operators, eager to take advantage of the opportunity and avoid being shown by their competitors, accumulate promotions to attract new customers and keep existing ones.


7;t miss: Apple offers 5G for the iPhone, but keeps the same price tags

The most generous offer so far comes from AT&T Inc. T,
which will give both new and existing customers $ 800 credit for a new iPhone if they trade in an iPhone 8 or newer device, in what the company says is a “limited time” offer for these activating devices in one of his unlimited plans. The loan will be repaid over 30 months and AT&T will give smaller loans to those who trade in slightly older models than the iPhone 8.

“If someone is willing to pay you $ 800 for a $ 100 phone, that’s a pretty good deal for consumers and Apple, but it will obviously affect the wireless carrier’s balance,” LightShed Partners analyst Walter Piecic told MarketWatch. The $ 800 subsidy is the largest he has seen on the day the iPhone was launched.

VZ of Verizon Communications Inc.,
the best deal is a $ 800 subsidy, Piecyk said, but is limited to new subscribers with unlimited plans. T-Mobile US Inc. TMUS,
offers half of the iPhone 12 Pro through account credits or $ 500 from each iPhone 12 device to those who trade their phones. The company offers a $ 850 discount offer for those who add a line and trade in a phone.

Apple will benefit from significant operator subsidies to boost phone upgrades, Piecyk said, as about 70 percent of U.S. phone sales are from branded stores before the COVID-19 crisis, he estimates. Operator promotions are usually a big driver for phone upgrades.

Wireless deals of this type usually only happen “late in the life cycle of the iPhone,” wrote Wolfe Research analyst Jeff Kval, who agreed that operator subsidies could help lift the iPhone 12 early. a proposal for 5G value, which Apple’s examples (mobile games, remote MRI) didn’t mind, “he continued.

It remains to be seen whether these promotions could help achieve a true “supercycle” for Apple, as the United States accounts for less than half of Apple’s total sales. The company’s only true supercycle, according to Piecyk, came when Apple expanded its screen size offerings during the launch of the iPhone 6, and that momentum exists again because there’s a chance the new iPhone 12 Mini will “really appeal to markets that they wanted this “smaller form factor,” he said.

For more: Apple makes the 5G iPhone look like a good value, which can be a huge signal

The benefits for wireless operators are far less certain. The heavy promotional approach seems to fly ahead of the wisdom of past launch cycles.

T-Mobile launched expensive promotions during the iPhone 7 cycle, which began in 2017, and forced rivals to follow suit. A year later, the current CEO and then chief operating officer of T-Mobile, Mike Sievert, acknowledged that such an aggressive promotional strategy did not pay off, as the rest of the industry did. Piecyk noted Sievert’s comments from the September 2017 Goldman Sachs conference, where he said, “It turns out that free iPhones aren’t a great way to get people to switch.”

The three major US wireless operators are in various positions in the iPhone cycle and the early days of 5G coverage. Now that it can use the spectrum it gained through its acquisition of Sprint, T-Mobile “has the potential to have differentiated network quality, something it didn’t have before,” Piecyk said.

See also: Does the 5G iPhone 12 upgrade?

This puts pressure on AT&T to retain its subscribers and potentially attract new ones. “AT&T has the highest percentage of iPhones at its core and the highest percentage of protection,” wrote JP Morgan analyst Philip Cusick.

However, the company is in a difficult position, as it is particularly dependent on its wireless business, with problems in its DirecTV unit and elsewhere.

“The challenge is that while [heavy subsidies] can generate good subscriber growth, you still need to generate free cash flow, ”Piecyk said. “The most important thing for AT&T is to generate enough free cash flow to pay the dividend.”

Don’t miss: AT&T’s 7% dividend yield traps stocks, analyst says

Verizon, meanwhile, seems poised to put a lot of marketing money behind its 5G pressure, and Piecyk said it could “lean” into its strong margins as it does so. The company had its CEO on stage during Apple’s iPhone launch event on Tuesday to announce that it includes a “national” 5G service for 200 million people in addition to expanding access to its faster 5G broadband service. .

So far, marketing can get a company, according to Piecyk, and the big question is how Verizon’s network speeds will accumulate. The number of customers who will be able to access the company’s ultra-broadband speeds will be limited for some time, he argued, and some reports suggest that Verizon’s 5G across the country doesn’t offer much of a speed boost over 4G.

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