T-Mobile (NYSE: TMUS) is the nation's fastest growing wireless carrier. Earlier this month, T-Mobile said it added 1.6 million new subscribers in the fourth quarter -- the third consecutive quarter in which it added more than one million new subscribers.
But there's something noteworthy about T-Mobile's customers -- they just don't seem to care for Apple's (NASDAQ: AAPL) iPhone, at least not as much as their counterparts at other major carriers like AT&T (NYSE: T) and Verizon (NYSE: VZ). As T-Mobile continues to grow, and its rivals come to adopt its policies, Apple could sell fewer iPhones in the U.S.
T-Mobile's iPhone activations remain muted
T-Mobile won't officially report earnings until next month, but according to Consumer Intelligence Research Partners, only about 22% of the smartphones T-Mobile activated in the fourth quarter were made by Apple. That data is largely in-line with prior quarters: in the second quarter, just 21% of T-Mobile's smartphone sales were Apple's iPhones, and in the third quarter, only 10%.
In contrast, Apple has generally accounted for about 50% and 80% of Verizon and AT&T's smartphone sales, respectively, though it should be noted that both companies have stopped disclosing that number.
There are a few factors that might explain this discrepancy: T-Mobile was the last major carrier to get the iPhone; its subscribers may prefer alternative ecosystems; and its salespeople might be more comfortable pushing handsets that they have more experience selling.
But what can't be ignored is T-Mobile's pricing policy. Unlike AT&T and Verizon, T-Mobile doesn't offer subsidies. T-Mobile subscribers pay their entire phone's retail cost, making cheaper handsets far more enticing. If you're a Verizon or AT&T subscriber, you might not care that Motorola recently cut the price of its unlocked Moto X from $579 to just $399 -- if you buy the phone on contract, your payment doesn't change. But if you're on T-Mobile, you should care a lot: every dollar Motorola doesn't charge you is a dollar more in your pocket.
I've been harping on this trend since November, and it's worth coming back to in light of T-Mobile's continued growth. If T-Mobile's pricing policy had no effect on consumers' smartphone preference, Apple's iPhones as a percentage of T-Mobile's total smartphone sales should be increasing, particularly as the carrier seems to be poaching subscribers from other networks.
The fact that doesn't seem to be happening should be somewhat alarming for Apple shareholders.
AT&T embraces T-Mobile's policies
What's even worse is that T-Mobile's rivals are adopting its policies. In particular, AT&T's "Mobile Share Value" plan is a near-replica of T-Mobile's standard agreement, giving subscribers the option of reducing their monthly bills if they pay for their own smartphone. AT&T still offers standard, subsidized plans, but its CEO hinted last month that those could be going away.
Verizon has its Edge plan, which works like T-Mobile's in that subscribers who choose it over standard plans don't get a smartphone subsidy. But Verizon hasn't been nearly as aggressive as AT&T in pushing its subsidy-free plan, nor has its management made as much noise about ditching subsidies.
Nevertheless, during Verizon's earnings call earlier this week, the company's CFO commented about the changes taking place in the wireless industry, noting that there's a "shift in pricing between service and equipment" -- that is to say, carriers are ditching subsidies.
The move away from smartphone subsidies should result in fewer iPhone sales
Ultimately, I believe the trend away from smartphone subsidies by the major U.S. carriers should result in fewer iPhones being sold. With consumers stuck paying their phone's full retail price, they're much more likely to pick a cheaper handset, or to hold onto their existing handset for a longer period of time.
If I'm wrong, Apple's iPhone as a percentage of T-Mobile's smartphone sales should increase meaningfully in future quarters, particularly as T-Mobile steals subscribers from other carriers like AT&T and Verizon. So far, however, that doesn't seem to be happening.
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