Hello! And welcome to our Friday column, Worst of the Week. There’s a lot of nutty stuff that goes on in this industry, so this column is a chance for us at RCRWireless.com to rant and rave about whatever rubs us the wrong way. We hope you enjoy it!
And without further ado:
News this week that Leap Wireless would begin offering Apple’s iPhone devices was a significant escalation in the competitive landscapes across the already red-hot smartphone and prepaid markets.
For device lovers (and who amongst us is not one?) the move would seem to finally unleash the iPhone from the bane that are those pesky carrier contracts. I mean, who wants to be tied to a contract that “forces” someone to pay for service on a device that they would already being paying service for in exchange for being able to purchase that device for a discount? The nerve!
In the case of the Leap announcement, the no-contract carrier will later this month begin offering the now 8-month-old iPhone 4S 16 GB model for the kingly sum of $500, or the nearly two-year-old iPhone 4 8 GB model for a princely price of just $400. (Those contracts and subsidies don’t look so bad now, do they smarty pants?)
(Side question for Apple: Where in the hell are all these two-year-old iPhone 4’s coming from? Did they not sell so well and there is a warehouse in Cupertino just overflowing with old inventory?)
Perhaps more important for those looking to shave expenses, Leap will be charging customers just $55 per month for unlimited calling, messaging and up to 2.3 gigabytes of unhindered 3G data services, compared with the $100 or so larger rivals charge per month for the same quantity of service. (I now take back that smarty pants comment.)
The challenge for Leap would seem to be in convincing people that those long-term saving will eventually make up that $300 initial price difference, a task I do not envy. Sure, the math is pretty simple: saving $45 per month will see that initial price concession recouped in a mere seven months. No brainer, right? But, people typically can’t see beyond that upfront expense when it comes to purchasing a mobile device.
As for the new face of the no-contract space, Leap’s move seems to up the ante in a sector that seems to have its ante upped on a daily basis. Between new cut rate offers, carriers promising 4G speeds without a contract and the non-stop rollout of more powerful, Android-powered devices, customers looking to go through their mobile life unburdened with a contract hanging over their head would appear to have all they could ask for. Except for access to a fully functionally iPhone … until now.
Analysts are already fretting over how Leap is going to pay for this move, with the carrier already noting it has committed $900 million to iPhone purchases over the next three years. This from a company that posted a nearly $100 million loss attributed to shareholders during the first quarter of the year, a quarter that along with the holiday heavy fourth quarter are supposed to be its “strong” quarters.
Some of that loss was attributed to increased device subsidies tied to growing sales of smartphones, a figure that is only expected to grow should the iPhone’s high sticker price not scare off Leap customers. However, Leap has also battled churn issues that it’s hoping the iPhone will help to conquer. This is a game of poker I would not like to be involved in, but am glad to stand by over by the railing to watch it all unfold.
For Apple, this deal would seem to be a no-brainer. Finding new outlets in which to sell its wares is what it’s all about. And as long as those outlets are willing to fork over the dough, all is good in the hood.
The only downside noted by a few Debbie Downers is that the move could perhaps remove some of the luster from Apple’s crown as the must-have device for those wanting to appear “hip.”
To this I say “hogwash.” I think we could all agree that the iPhone has become the Razr of the smartphone generation and that with toddlers now sporting their own iPhones, all luster has been lost. But, that loss of luster has not impacted demand for anything Apple.
However, for Leap, the move is an all-in play that perhaps it has been forced to make to remain viable in the current competitive environment. While the carrier has a history of playing it safe when it comes to economics, this move shows that model may have played itself out. This decision could either solidify the carrier as an anchor in the no-contract arena, or fail in a spectacular fashion.
Either way, good on you Leap for taking the chance.
OK, enough of that.
Thanks for checking out this week’s Worst of the Week column. And now for some extras:
–Speaking of smartphones, Samsung went gaga this week announcing the launch of its new Galaxy S III uber-device. The phone packs more features than all the smartphone features ever introduced to this point combined. It also has the ability to control space ships, converse with woodland creatures and predict lottery numbers.
But, for some reason the device cannot keep hold of its alluring “Pebble Blue” color. I guess the future really will be a bleak, colorless existence.
I welcome your comments. Please send me an email at dmeyer@rcrwireless.com.
Bored? Why not follow me on Twitter?
