New iPhone tests a wireless industry scarred by price wars
A new iPhone means another opportunity for America’s wireless companies to engage in a knock-down, drag-out price war – if the carriers still have the stomach for it.
Apple Inc is expected to drop the latest version of its best-selling device as soon as next month, a year after its last upgrade spurred freebies from the four biggest wireless carriers. T-Mobile US Inc was first to let new or existing customers trade in an iPhone6 for an iPhone7, and Sprint Corp, Verizon Communications Inc and AT&T Inc quickly followed with their own matching deals.
Those giveaways came at a price – about US$200 (RM857) per subscriber in the final two quarters of 2016, according to Jefferies Group LLC. And the higher price expected for the new iPhone could swell the out-of-pocket expense further if carriers do similar promotions. The wireless companies would rather adopt a more conservative strategy this time around, but if one of them caves and offers an aggressive promotion, the rest are likely to follow suit.
It “is obviously not a healthy situation,” said Michael McCormack, an analyst at Jefferies. Larger carriers like Verizon and AT&T have more lower-end phones on their networks, he said. “Those are the subs that are most likely to be draw into a lower price point or some sort of promotional activity.”
With T-Mobile and Sprint pushing iPhone deals and unlimited-data plans last year, both Verizon and AT&T took big hits in the third quarter, losing 36,000 and 268,000 phone subscribers respectively. Even T-Mobile, which came out on top with a gain of 851,000 net adds in the quarter, says it may steer clear of the strategy this year.
“If you have a promo which is copied by everybody else, it’s somewhat less effective,” Nils Paellmann, T-Mobile’s vice president of investor relations, said Aug 9.
In recent months, aggressive promotions failed to dislodge customers from their current carriers. Last quarter, the four biggest wireless companies reported declines in churn rates, or the percentage of customers who cancel their service each month, compared with the first three months of the year.
Intense promotions have become a staple in the highly competitive industry and carriers may have no choice but to give customers what they want, said Chetan Sharma, an independent wireless analyst. New promotions are going to be “focused on keeping the existing customers as much as they are designed to churn them from their competitors,” he said in an email.
The market is flooded with devices, making it difficult to find new users. With 395.9 million total active gadgets, there is more than 1.2 per American, according to the industry trade group CTIA.