Apple’s iPad Business Could get a Big Boost From T-Mobile

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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: GOOGL  ) Android.

T-Mobile's (NASDAQ: 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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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 October 27, 2013, at 12:05 PM, Mathman6577 wrote:

    iPad = 80% of all tablet web traffic. The savvy user knows where to go.

  • Report this Comment On October 27, 2013, at 1:18 PM, johnestromjr wrote:

    With an Android device does the owner get the superior iPad/tablet? [no] Does it get Apple's ecosystem? [no] Does it give free software and software upgrades? [no]

    Why do these "experts" continue to compare Apple's iPad to Android devices. They're really totally different. Finally, since it isn't pointed out, are Android devices used that much? The fact is that Apple's devices make up about 84% of all web traffic. So why do the "experts" continue to compare them as though they were the same.

    It seems the many Android devices are largely unused other than for amusing the owner who plays games on those devices.

  • Report this Comment On October 27, 2013, at 6:50 PM, slapppy wrote:

    Good point johnestromjr! It seems as if it's mandatory to compare. Android is loaded on even the crappiest 50 dollar phone or tablet...yes that's why it's popular because it's free on a dirt cheap pos product. It's loaded on giveaways also. The real value is iOS, iPads, iPhone and iTunes ecosystem. A buyer will have a much better and superior experience with Apple products, not with the freely giveaways bottom barrel designed android ecosystem.

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