T-Mobile Subscribers Don't Like Apple's iPhone

T-Mobile (NYSE: TMUS  ) is the nation's fastest-growing carrier. Last month, it added 1 million net new customers and 648,000 new subscribers. The quarter before that, it added 700,000, rapidly outpacing larger rivals AT&T and Verizon Wireless (NYSE: VZ  ) .

But there's something interesting about T-Mobile's new subscribers -- they don't seem to care for Apple's (NASDAQ: AAPL  ) iPhone. Not that they don't want it -- T-Mobile sold about 900,000 iPhones last quarter -- but that, proportionately, they aren't buying as many of them. Last quarter, just 21% of the smartphones T-Mobile sold were iPhones; in comparison, a whopping 51% of Verizon's smartphone activations were Apple-made handsets.

What's with the discrepancy? A few percentage points may have been chalked up to random chance, but a difference of such magnitude speaks to some underlying force at play. T-Mobile's lack of subsidies stands as a major contributing factor.

T-Mobile's "un-carrier" initiatives
T-Mobile's recent growth has largely been the result of its new "un-carrier" policies, the most significant of which has been the cessation of two-year contracts. Unlike other carriers, T-Mobile's subscribers pay month to month, and there are no early-termination fees.

But with no contracts, there are no phone subsidies, either. When buying a phone from T-Mobile, customers must pay for the phone themselves -- either totally up front or by making a down payment (depending on the model), and then paying the rest in monthly installments.

This means that, to T-Mobile subscribers, the price of the handset they're purchasing is far more significant -- cheaper phones, therefore, become much more alluring. Nokia's 521, a phone that costs just $126, is listed as a top seller on T-Mobile's website. To get that phone, T-Mobile subscribers can either buy it outright or pay $5.25 per month for two years; in contrast, Apple's iPhone 5s can either be purchased for $649 or with a down payment of $150 and monthly installments of $21 for two years.

Phone subsidies make customers less price sensitive
The net effect of T-Mobile's new policies is to make consumers far more sensitive to the cost of their handsets: The price of T-Mobile's monthly service can very significantly based on which phone the subscriber chooses.

In contrast, subscribers on other carriers are likely to be far less sensitive to the cost of their phones -- the monthly bill is largely the same no matter which handset they use. Verizon Wireless offers cheaper phones, but there is little reason to purchase one. The Pantech Marauder, a phone running Google's Android, costs $340 unlocked. Subscribers signing a two-year agreement with Verizon get it for free, but customers would do themselves a great disservice in purchasing it.

Getting an iPhone 5s costs just $200 more because Verizon subsidizes the phone so generously. But compared to Pantech's phone, Apple's handset is well worth the extra $200, especially because contract signers will be forced to use it for two years. CNet gave Pantech's phone a rating of 7.0 (out of 10) lamenting its laggy processor; in contrast, it gave the iPhone 5s an 8.8, calling it the "fastest and most advanced Apple smartphone to date."

But once you get your new phone, you'll pay the same for monthly service -- for a plan with 2GB of data, Verizon charges about $100 per month. Users of Apple's iPhone 5s or Pantech's Marauder will end up paying the same monthly fee.

T-Mobile's growth is an area of concern for Apple
While Apple's iPhone has stayed strong in the U.S. (accounting for about 40% of smartphone sales), it's been sidelined in most other major markets. Worldwide, Apple's share of the smartphone is now down to about 13%.

The difference between the U.S. smartphone market and other countries largely comes down to subsidies -- Apple depends on carriers footing the majority of the bill for its expensive phones. That works exceptionally well when the carrier is Verizon, where flat monthly bills incentivize subscribers to get the best-quality phones possible, regardless of the price.

But not so much when the carrier no longer offers subsidies. T-Mobile subscribers can see vast differences in their monthly bill depending on their choice of handset, making them less likely to purchase an expensive iPhone from Apple.

Certainly, T-Mobile is just one carrier, and one of the smaller ones at that. But its rapid growth should be watched closely, particularly if other carriers move to adopt T-Mobile's policy.

No matter who wins the smartphone war, this company stands to profit
Want to get in on the smartphone phenomenon? Truth be told, one company sits at the crossroads of smartphone technology as we know it. It's not your typical household name, either. In fact, you've probably never even heard of it! But it stands to reap massive profits NO MATTER WHO ultimately wins the smartphone war. To find out what it is, click here to access the "One Stock You Must Buy Before the iPhone-Android War Escalates Any Further..."


Read/Post Comments (16) | Recommend This Article (2)

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 November 20, 2013, at 2:09 PM, GaryDMN wrote:

    T-Mobile has only offered the iPhone for 6 months, where Verizon and ATT have offered the iPhone for years. They have zero repeat iPhone customers and ever customer is making a first time iPhone purchase from T-Mobile.

  • Report this Comment On November 20, 2013, at 2:26 PM, bugnuts wrote:

    Since Mattera is persistently anti-Apple, it's difficult to know whether he omits facts by design or ignorance.

    - T-Mobile has been offering the iPhone for six months. The iPhone took a while to take off on all other networks on which it's offered as well.

    - T-Mobile's network is not as robust as Verizon's outside cities. I wouldn't buy a T-Mobile data plan if I could get only spotty coverage.

  • Report this Comment On November 20, 2013, at 2:51 PM, iSRS wrote:

    Nice article, with great points (T-Mobile customers are more price conscious for price of handsets).

    What about the HTC One, Samsung Galaxy S4? Other high end, iPhone class phones? Are they selling better than the iPhone on T-Mobile?

    Also, didn't T-Mobile change it's whole business plan when they added the iPhone, specifically because they didn't want to be saddled with the higher cost of the iPhone themselves? T-Mobile, hopefully, has a 2-3 year plan in place for this new model. There will be some early new customers. But as they improve their service, this whole "new" way of buying a cell phone becomes more comfortable to US customers, I can see a slow rise for T-Mobile.

    Verizon (and I think AT&T) have moved the subsidy eligibility from 20 months (to lock you in before you can leave) to 24 months (meaning you are free of contract). This has caused me to, for the first time in years, consider switching of Verizon. The iPhone that I wanted didn't even cause me to switch to AT&T. That is how "loyal" to Verizon I was. But their less customer friendly approaches over the past couple years, along with every carrier offering unlimited talk and text, really makes the only difference in carriers network quality and price. Network, first, as AT&T and Verizon are comparable price wise.

    With the subsidy model, I upgrade the moment I am eligible. Why? Because if I keep a phone for 3 years, I am paying more for it because the service price is the same regardless. At least T-Mobile is changing that.

    I am considering buying a cellular iPad on T-Mobile for the "free" data they are offering. Use it as a way to test out their network. If it goes well, iPhone 6 time I will switch to them. I can't be alone in this thought process.

  • Report this Comment On November 20, 2013, at 2:55 PM, KarenKavanaugh wrote:

    The point of the article that subsidies cause people to be less price conscious is well taken, but I take issue with the description of Verizon's subsidies as "generous". If you buy a 16GB iPhone 5s ($649 unlocked) from Verizon with a two-year contract, you will pay $199 up front and have to sign up for a required data plan at a minimum of $30/month. Over the course of the contract, you will therefore pay $919 for your $649 iPhone. I'd say its Verizon's customers who are being generous.

  • Report this Comment On November 20, 2013, at 2:56 PM, larryw101 wrote:

    Sam,

    Have you been reading Yahoo's Finance message board for Apple lately? Turns out your a pretty popular guy. A blog was posted and a poll taken on your journalism skills, or lack of, I should say.

    With your perpetual bias in bashing Apple, combined with your lack of credentials, you received 57 thumbs down along a string of negative comments about your writings. I think the one and only thumb up you received was your partner Jamal who posted.

    I don't feel you nor Motley Fool realizes how foolish you both appear to readers. If I'm not mistaken, you written over 40 negative articles in the past year alone on Apple. Even the most bearish authors have given credit to Apple at one time or another. But not you Sam.

    I'm convinced your sole motive in continuing this negative assault on Apple is to bait readers to click on your story after reading the title so you can collect your pennies a click commission.

    By the way, would you mind telling us readers exactly what your credentials are? Your profile has none listed.

    Shame on you and Motley for such biased and slanted journalism.

  • Report this Comment On November 20, 2013, at 2:57 PM, travelfool wrote:

    There are numerous recent reports on tMobile's successes with iPhones and how the introduction of iPhone finally saved tMobile from losing market share to competitors quarter after quarter after quarter...this article completely misused the data and is another piece of junk from Motley Fool

  • Report this Comment On November 20, 2013, at 3:19 PM, JaredPorter wrote:

    All carriers rush to add the iPhone to their portfolios as soon as they can to help insure that they can finance their expensive network infrastructure conversions to 4-G. Verizon, T Mobile, and Domoco in Japan were losing customers until they carried the iPhone. Similar experience with China Mobile to the next two smaller carriers.

    Shoppers at the carriers should be aware of undisclosed commissions that their sales' people may be paid by vendors OTHER THAN Apple for promoting alternate brands. For example Samsung's marketing budget is about 4 times that of Apple's and I think a huge chunk of that is for 3rd party sales' commissions? (I would appreciate it if some "insider" (e.g., some carrier or a Best Buy employee), would clarify this point on some forum.)

  • Report this Comment On November 20, 2013, at 3:49 PM, iphonerulez wrote:

    I'd say it's belaboring the obvious that there will always be more less expensive products sold than high-end ones. That's why Porsche can't sell as many vehicles as Toyota. Porsche has relatively small market share than either Toyota or Kia but the company still manages to survive. There are usually no constant rumblings about Porsche going out of business or falling out of favor with potential customers. You either want a Porsche or you don't and there's no reason why Porsche should make compromises and try to lower its prices to compete with lower-cost brands. Down payments on a Porsche are higher along with higher monthly loan payments. So what? Why is Apple's way of thinking any different from that of Porsche. I believe Apple's branding is even greater than Porsche's.

    I honestly don't understand why there is so much importance to how many devices are being sold by Apple. If Apple were willing to reduce prices they could easily sell more product and so could Porsche. What's really important is how a company balances its books and it used to be that a company that made more profits was considered the more successful company especially if customers were happy with the product. It seems that no longer holds true and that a company following those fundamentals is seen as damaging its own future.

  • Report this Comment On November 20, 2013, at 4:23 PM, mackB wrote:

    Don't worry Sam, they're seems to be a lot of Apple lovers or employees roaming this blog. Fact is Apple is on the decline and they don't like it. Jobs is dead, so the rest of the Apple crew are floundering around while everyone else is hot on their heels, getting ready to pass. T-Mobile and the rest of the world don't particularly care for them and the days of Apple charging what they want are slowly coming to an end. Hence the cheaper iPhones are in the works. Even Apple can see the writing on the wall.

  • Report this Comment On November 20, 2013, at 8:21 PM, polmcs wrote:

    One reason that the iPhone may not be as popular on T-Mobile is that although the T-Mobile network supports WiFi calling, the iPhone does not. I've been a loyal T-Mobile customer for years and waited patiently for them to offer the iPhone. I've had Windows phones and I've had Android phones in the interim and when my upgrade window opened up just as the 5S was released, I was all set to finally get an iPhone. Unfortunately, when doing some research on the phone, I discovered that wifi calling was a non starter and that pretty much was a deal breaker.

    I opted for the Galaxy Note 3, so there are T-Mobile customers out there willing to pay the unsubsidized pricing, albeit on a monthly payment plan.

  • Report this Comment On November 20, 2013, at 10:19 PM, Gunnyphillips wrote:

    Having just gone through the process of purchasing an iPhone 5C from T-Mobile for my wife, I can tell you that too much is made of the approach they take compared to other carriers. You are still locked in for 2 years with T-Mobile. The only difference is that the tether is now the phone itself instead of the contract. Leave them before your 2 years is up and you'll be stuck with a brick that needs to be unlocked for use with another carrier. But at least in T-Mobile's case, when you're done paying off the phone your bill goes down accordingly.

    Price transparency is a good thing so I prefer the T-Mobile model, but lets not fool ourselves into believing it is all that different than the others.

  • Report this Comment On November 20, 2013, at 10:58 PM, ahayden6 wrote:

    A couple of issues ignored by Sam. First off, I'm a sales manager with T-Mobile, so unlike Sam, I have access to the real data, and therefore can make a more cogent argument.

    It is not the lack of subsidies that is responsible for the difference in sales numbers. If that were the case, the Samsung galaxy series of smartphones would not be our top seller because they carry prices the same or even higher than the iPhone 5. What makes the difference is that our sales force was at the forefront of the android introduction into the marketplace. We are more informed as to its strengths and have spent years informing our customer base of those strengths. Because we didn't have the iPhone available to make the quick, uneducated sale to a customer who was just being swayed by advertising and popular opinion, we spent a lot of time and energy doing just the opposite with our customers. When the iPhone did come, we were happy to have it fill out our portfolio of devices, but we were not in a position of having to rely on it for the majority of our sales. The sales force, and therefore our customers, understand that you can get more for your money buying a Galaxy S4 with its 5" hd screen, quad core processors, 13 mp camera, and yes, as others were keen enough to point out, support for wifi calling, one of our strongest features and a big differentiator between our competition. Combine this with some of the other points made here, like the lack of a repeat iPhone customer (although we have been supporting millions of unlocked iPhones on our network for years), and the fact that during the time we have been selling the iPhone, it has seen a precipitous drop in worldwide market share, you can see why our percentage of iPhone sales reflects that same reality. 80% of smartphone sales in the 3rd quarter were android os, and that is not likely to change going forward unless Apple makes a significant change to its next offering to bring it up to par with the best android has to offer. And no, I'm not an Apple hater. I am responding to this thread on my iMac with my new iPad mini with retina display sitting right next to me. Both great products that are still out front of their competition in many ways. The iPhone simply is not in that position anymore.

    As to the point brought up about different commission structures for different phones, at least as far as T-Mobile is concerned it does not exist. We do not get paid a commission for the specific phone at all. The reps get paid a small spiff, that is a flat rate regardless of device or price, if the sale has a device included. Otherwise, our commission is solely based on plan and features. All the companies will occasionally offer sales contests where the reps can win prizes if they sell enough of a specific device or brand, but it is an insignificant portion of their total yearly compensation package.

    So, T-Mobile customers don't like the iPhone as much as other carriers, but it has nothing to do with price and subsidies, and has everything to do with what the other products offer instead.

  • Report this Comment On November 21, 2013, at 1:02 AM, JaredPorter wrote:

    @ ahayden6. Thank you for explaining about T Mobile's sales commissions policies.

    I understand your point about the iPhone being a new model to learn how to demonstrate by your sales staff.

    I realize Android is growing much faster globally than iPhone, but some reports say that 60% of the Android devices (mostly in China), can't even use Google play. Also iPhone sales were still up 12% last quarter year over year, even though many were waiting for iPhone 5s and 5c. And the holiday quarter should break even more records for iPhone since the new reviews have been so glowing (and it seems that Galaxy 4 has been fading compared to Galaxy 3?).

    Can you please mention how your store might be doing with iPhone 5c? Many writers think it is not selling well. Thank you.

  • Report this Comment On November 21, 2013, at 6:33 AM, tizhim wrote:

    HUH? The article totally missed the point - it's the plan TOTAL cost. Others have correctly noted the lack of history with iPhone, and the embedded costs adds up on ATT and Verizon where after 2 years it mathematically makes sense to get a new phone because you are paying that approx. $20/mo anyway as it stays hidden in the bill. That is precisely why I left ATT in Oct when my 2 years was up for T-Mobile. Now, looking at cost (2 phone family plan) taxes included, ATT $156/mo and similar coverage T-Mobile and includes the monthly payment for the 2 phones, $144/mo. Technically, ATT was even higher as insurance was paid separately to a 3rd party, but rolled into the T-Mobile bill.

    Now let's look at the phones. What's with comparing the iPhone to the low end Nokia? How about the true competition that people decide between - Samsung S4 (or cheaper S3), HTC One, or LG G2 which is what I got for $0 down while ATT wanted $199 for the same phone. Monthly charges for androids was around $25/mo while both Apples were $21/mo. At ATT, the initial down payment for each phone was similar, with the exception of the LG with the monthly charge hidden in their monthly charge rather than itemized and terminating when paid for at T-Mobile. ATT's semi-competitive NEXT option was even more expensive while appearing less expensive, and had a completive monthly cost for the phone. In fact, if you do the math with both ATT and T-Mobile (and Verizon) the total cost over 2 years equals the outright purchase of an unlocked phone.

    Why did I choose the LG? I came in for the Apple 5s ($199 T-Mobile and everywhere) but no inventory and waiting list and wife's phone requiring replacement now. Was going to compromise with the 5C ($49 T-Mobile and everywhere) and use the JUMP program in 6 month (a year with ATT or Verizon competitive programs). Settled on the LG G2 ($0 at T-Mobile while $199 at ATT and $149 Verizon) as I didn't want the upfront investment that would never be returned if I was going to JUMP in 6 months.

  • Report this Comment On November 21, 2013, at 12:10 PM, wtfomglol wrote:

    As a T-Mobile/Voicestream customer for the past 14 years I can tell you that it is all about prices of their phones they are offering. The service doesn't matter at all because of wi-fi and they have a great unlimited everything plan for $79.99 which for a while was the cheapest and best offered (I don't use my phone for games and mass data usage because I have a computer that I sit in front of all day for that). What has turned me against T-Mobile is their new pricing strategy. Before when you were on a contract you could upgrade to pretty much any top model phone for under $300 pre tax whereas now they charge you full price or higher and then take $5 or less off you bill and then insist that over two years the savings from your bill will make up for paying the higher price for the phone which if you actually do the math (not t-mobile math) you will realize that is a complete lie and you are paying hundreds more per year now than before. Also, most people don’t keep their phone for two years and personally I have yet to have any phone last longer than a year so you really have to do the math based off one year and not two years. When I "upgraded" my phone a few months ago I went to ebay and got my phone for $117 compared to the $690 T-mobile was offering it for. For me, I already spend about $1200 per year for a cell phone, not like food, gas, or even health care but a cell phone, and I can't justify to myself spending more than that which is what T-Mobile and their stockholders want us to do. So to me it is all about their prices and if any of their other customers are smart they are shopping around for unlocked phones that are cheaper than what T-Mobile is offering them for. The only reason why I am still with T-Mobile is because I don’t see cheaper plans elsewhere than what I am currently paying for. Once I find a cheaper alternative for what I currently have I am gone. As long as they are listing their phones for full msrp or higher I will never purchase another phone from T-Mobile directly.

  • Report this Comment On November 21, 2013, at 7:52 PM, olympia3 wrote:

    As mentioned above, I also am a long time T-Mobile customer who, year after year, waited patiently for the iPhone to become available. When it finally came to T-Mobile it did not include Wi-Fi Calling, for me a basic necessity. Every other phone that T-Mobile carries has Wi-Fi Calling Except the iPhone. Now I am patiently waiting for the iPhone to get Wi-Fi Calling. Meanwhile, I'll just hold onto my old Samsung Galaxy.

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: 2735302, ~/Articles/ArticleHandler.aspx, 12/20/2014 1:05:30 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...


Advertisement