Recs

6

Let the Cheapskate iPhone Revolution Begin

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Ever since the iPhone first came out, many cost-conscious consumers have found it to be prohibitively expensive. Now, Apple (Nasdaq: AAPL  ) is making a strategic shift to open up the iPhone to an even wider audience of those who are smarter about understanding what they're spending. That's good news for consumers, but it poses a big threat to AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) -- and Verizon has responded in exactly the wrong way.

The endless march of technology
New technology has always had an adoption curve. Early adopters are willing to pay nearly anything to get their hands on the latest gadgets. Once the best products rise to the top of the heap, another wave of more patient buyers comes in to grab up the most reliable top performers of the bunch. Last but definitely not least, cost-conscious customers wait for prices to come down to snap up bargain-priced devices, giving up the state-of-the-art for the reasonable performance that older technology still provides.

For computer makers Dell and Hewlett-Packard, the inexorable march toward technology commoditization has given them direct struggles to sell their products. But with smartphones generally and the iPhone in particular, exclusive deals from mobile carriers and subsidized phones with locked-in contracts obscured the true cost for many consumers, leading to delays in the playing out of the product cycle.

Here's how it worked: AT&T -- and later, Verizon and Sprint Nextel (NYSE: S  ) -- sold iPhones at relatively low prices. Yet with the phone came a commitment to paying for two years of service at arguably inflated rates. By locking customers in and charging big early-termination fees to get out, Apple collected much higher prices for its iPhones from the carriers, while the carriers eventually got paid back through contract payments.

Early adopters may not have cared about all that. But the bargain crowd looked beyond the $199 upfront cost of the phone to the potential of paying as much as $2,600 for two years of cell-phone service -- and happily waited for a more reasonable solution to present itself.

Rise of the bargains
Now it appears that Apple is finally doing what it should have done all along: pitting providers against each other to make as many people as possible interested in buying the iPhone. With both Leap Wireless' (Nasdaq: LEAP  ) Cricket and Sprint's Virgin Mobile about to offer the iPhone 4S -- the newest model currently available -- Apple is signaling a desire to focus price competition on the service side of the smartphone equation.

Cricket and Virgin offer a trade-off. You'll pay Cricket $500 or Virgin $650 for an iPhone 4S, but you won't be locked into expensive contracts. Cricket offers an unlimited plan for $55 per month, potentially bringing the two-year service cost down to $1,320. At $30 per month for unlimited text and data, Virgin is even less expensive -- $720 for service or $650 for a Virgin iPhone.

Nothing's stopping AT&T and Verizon from making similar moves. Instead, though, Verizon decided to give up on its low-end users by implementing its Share Everything plan, which will eliminate limited-minute voice plans in favor of more expensive unlimited-voice plans. Many expect AT&T to do something similar in the near future.

What should you do?
High-end users who'd find the Cricket and Virgin offers insufficient will probably be happier to stick with AT&T, Verizon, or Sprint's own offerings. It's far from clear whether Cricket or Virgin will offer the iPhone 5 as quickly as the three premium carriers, which could be a big sticking point for those who've gotten used to swapping up for upgrades every two years.

But for price-conscious shoppers who've avoided iPhones because of the huge expense of service plans, Virgin and Cricket could well change things. More competition among mobile providers is good news for customers -- and for Apple.

Capitalism rewards the innovative. Check out one company that's innovating social media to new heights -- and has plenty of potential left. You'll learn all about it in the latest special report from the Motley Fool. Get your free copy today.

Fool contributor Dan Caplinger just may have an iPhone in his future now. He doesn't own shares of the companies mentioned. You can follow him on Twitter, @DanCaplinger. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of and creating a bull call spread position on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy never drops you.


Read/Post Comments (1) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 19, 2012, at 1:27 AM, motleyinfo7 wrote:

    This is way too late. Millions have customers have already gone prepaid on their iPhone with the likes of such titans as Simple Mobile's ( http://www.simplemoible.it ) $40 unlimited talk, text, web and international texting. Even Verizon iPhones have got into it with PagePlus Cellular ( http://www.pageplusonline.com ) iPhone options featuring unlimited talk, text and web for Verizon iPhones for just $55 a month.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1914801, ~/Articles/ArticleHandler.aspx, 10/21/2014 8:27:31 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

Today's Market

updated Moments ago Sponsored by:
DOW 16,614.81 215.14 1.31%
S&P 500 1,941.28 37.27 1.96%
NASD 4,419.48 103.40 2.40%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2014 4:00 PM
AAPL $102.47 Up +2.71 +2.72%
Apple CAPS Rating: ****
LEAP $0.00 Down +0.00 +0.00%
Leap Wireless Inte… CAPS Rating: *
S $6.24 Up +0.14 +2.30%
Sprint CAPS Rating: **
T $34.62 Up +0.34 +0.99%
AT&T CAPS Rating: ***
VZ $48.69 Up +0.21 +0.43%
Verizon Communicat… CAPS Rating: ****

Advertisement