When Apple (NASDAQ: AAPL ) reported earnings in July, it announced that iPad sales had fallen 14% from the prior year. That trend is expected to continue when Apple reports earnings next week; analysts at Morgan Stanley are projecting a 7% decline.
Those declines may have been due to the lack of a new iPad model -- if that's the case, Apple's newly announced iPad Air and iPad Mini with retina display could do much to reignite demand. But perhaps more important is pricing -- in recent months, Apple's tablets have been undercut by a wave of competitors running Google's (NASDAQ: GOOG ) Android.
T-Mobile's (NYSE: TMUS ) new plan could do a lot to offset pricing pressures. On Thursday, the carrier said it would begin selling tablets, including the iPad Air, in monthly installments.
T-Mobile wants your tablet business
T-Mobile has been on a roll this year -- both the business and the stock. Shares of the carrier are up more than 65% since its IPO in May, while T-Mobile itself unveils a steady stream of new, innovative policies.
That continued on Thursday with T-Mobile's tablet announcement. Starting next month, if you own a tablet compatible with T-Mobile's network, you can bring it in, and for the cost of a SIM card, T-Mobile will give you 200MB of data a month for the rest of the tablet's life.
But as most mobile users know, 200MB of data really isn't much. T-Mobile hopes that, by luring customers in with a bit of free data, many of them will purchase larger data plans. Perhaps some of them will even switch their smartphones over.
Making tablets cheaper
But more interesting than free data is the new monthly purchase plan. Going forward, Customers will be able to buy tablets from T-Mobile and pay for them with monthly installments. To start, T-Mobile will offer Google's Nexus 7 for $16 a month, but will eventually sell Apple's full-size iPad Air for 24 payments of $26.25.
That actually makes the tablets slightly more expensive -- the Nexus 7 at $16 a month for 24 months is $384, more than the $349 Google charges if you were to buy it upfront. But for the millions of Americans living paycheck to paycheck, a $16 monthly bill is far more palatable than $349.
Cheap Android tablets could wreak havoc on the iPad
But more than Google, T-Mobile's plan should help Apple. Although Apple may make the best tablets, they're expensive. Buying a wireless, 32 GB version of Apple's new iPad Mini with Retina Display costs $629 -- that's almost twice the price of Google's comparably equipped Nexus 7. Google's tablet might not be as good (the screen is a bit smaller, and the processor is a bit slower), but when the difference is a couple hundred dollars, it may be good enough.
It's little wonder, then, that tablets running Google's Android have exploded in popularity in the last year. Apple created the market, and the iPad dominated for a long time, but this year, Google's operating system has taken control. IDC estimated that, in the second quarter, tablets running Android accounted for more than 60% of global shipments. Hardly surprising -- after all, Android smartphones overtook Apple's iPhone years ago. Because Google gives its operating system away for free, Android tablets are available at nearly every price point.
But Android's growth has not been equal. Certain markets, like China and India, have been much more receptive than others, including the U.S. This is likely because of carrier subsidies -- in the U.S., carriers pay most of the bill. But there are few subsidies for tablets: Verizon and AT&T stopped subsidizing them last year.
Making the iPad more affordable
T-Mobile's move to sell tablets in monthly installments should make them far more affordable. A would-be tablet buyer, picking between Apple's iPad Air and Google's Nexus 7, might be more inclined to buy Google's device -- $349 is easier to justify than $629.
But when presented in monthly installments, the decision is not be so clear. No doubt, $26.25 is more than $16, particularly when projected out over two years, but an extra $10.25 a month is far more affordable.
Investors should look to see if other carriers follow T-Mobile's lead. As with the iPhone, carrier support could help Apple maintain its tablet dominance -- perhaps not worldwide, but definitely in the US.
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