Will Apple Help Virgin Mobile STOMP on Verizon and AT&T?
Sprint (NYSE:S) announced Thursday that Virgin Mobile would begin offering pre-paid iPhones on June 29. Apple’s (NASDAQ:AAPL) iPhone 4 and iPhone 4S will arrive that day, accompanied by a delightful surprise: a low-rate monthly plan starting at just $30.
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Virgin Mobile, which is owned by Sprint and uses the carrier’s CDMA network in the U.S., will sell the 8GB iPhone 4 for $549 and the 16 GB iPhone 4S for $649, both without a contract — the lower prices offered by Verizon (NYSE:VZ), AT&T (NYSE:T), and Sprint with their contract subscribers are the result of carrier subsidies that come only with a 2-year agreement.
Virgin Mobile’s $30 monthly plan for the iPhone includes 300 voice minutes combined with unlimited messages and data, although Virgin Mobile’s “fair use policy” is 2.5 GB a month.
Customers can increase their voice minute allowance to 1,200 with a $40/month plan, or get unlimited minutes for $50/month. All customers registering for automatic payments will get a $5 discount.
How does that compare to other carriers? Verizon offers the 16 GB iPhone 4S for $199 when signing a 2-year contract. That’s a subsidy of $450. Verizon’s basic voice plan is 450 minutes for $39.99, which right there more expensive than Virgin Mobile’s monthly plan that includes fewer minutes, but also comes with unlimited texting and a reasonably sized data plan. Verizon also charges $30 per month just for a 2 GB data plan. There’s no denying Virgin Mobile has the better deal, in terms of monthly payments. Spring and AT&T both have similarly priced plans to Verizon, and offer the same subsidized prices for the iPhone.
Those subsidies are certainly tempting, but they’re just like buying on credit — you put down less cash up front, but end up paying more down the line. For unlimited talk, text, and data with Virgin Mobile, subscribers are looking at a monthly bill of $50. For unlimited talk and text, and 2 GB of data — the most comparable to Virgin Mobile’s 2.5 GB “unlimited” plan — Verizon users will be paying $120 per month. That extra $70 will in six and a half months pay for that carrier subsidy, and you’ll be left with another year and a half of paying higher monthly bills.
Of course, Verizon (NYSE:VZ) and AT&T (NYSE:T) have always thrived despite the competition’s decidedly more affordable plans because of the vast size of their networks. And Verizon offers 4G service in the most cities of any U.S. carrier. But because Virgin Mobile users will have access to Sprint’s wireless network, they could cannibalize some of its business.
All carriers stand to lose iPhone customers to Virgin Mobile, the only question is, how many? Sprint certainly stands to lose the most, but that doesn’t mean Verizon and AT&T are safe. Just as they are increasing the cost of their plans, doing away with unlimited data plans, and planning to cut back on subsidies, the little guys are jumping in to undercut them. And because it’s all good business for Apple, more and more carriers are likely to join the fray in the coming months.
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