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Is This the $99.99 Deal That Saves Apple?

By Rick Munarriz - Apr 14, 2013 at 10:30AM

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T-Mobile appears to be having initial success with its tricky deal for cheap iPhones.

A new carrier could be just what Apple (AAPL -5.64%) needs to grow its market share.

Deutsche Telekom (DTEGY -1.72%) unit T-Mobile T-Mobile began selling the iPhone 5 over the weekend, and initial reports on Friday were encouraging. Online reports showed some T-Mobile stores busy with customers taking advantage of T-Mobile's new relationship with Apple, and that's more than what can be said for some of the new smartphones that have hit the market recently.

Healthy interest in a device released half a year ago is a welcome surprise. It's also a bit of a shock, given the flimsy value proposition of the iPhone 5 on T-Mobile. T-Mobile's advertised price of $99.99 for an entry-level iPhone 5 -- half of the retail price of the smartphone through larger carriers -- is actually just a down payment. The deal requires zero-interest financing approval, as customers are expected to pay $20 a month for the next two years. That adds up to $579.99 in capital outlays over two years, far more than the $199.99 that iPhone 5 buyers are shelling out on larger carriers. Even customers who can whittle down the initial down payment to zero through a trade-in will pay far more for the iPhone 5 itself.

T-Mobile's marketing claim is that it doesn't tie customers to annual contracts, and that's why it's not willing to subsidize the cost of a new smartphone. Is it ironic that the "Un-carrier" that disses long-term contracts is tethering customers to two-year financing deals? Yes, but let's not forget that the T-Mobile deal gets far more attractive when you compare T-Mobile's lower monthly rates with what AT&T (T -1.65%), Verizon (VZ -0.10%), and even Sprint Nextel (S) are charging.

T-Mobile's Simple Choice Plan offering iPhone 5 owners unlimited talk, text, and Web for $50 a month is a pretty sweet deal. It's only $80 a month for two devices, and just $10 more a month for additional lines in a family plan.

Of course, there's a catch. The basic plan includes only 500 megabytes of high-speed data a month before bumping users down to serviceable but slow 2G speeds. Customers can pay $10 a month more to have 2.5 gigabytes of high-speed data a month, or $20 a month for unlimited 4G connectivity.

T-Mobile argues that this is still a superior deal. Even with someone paying $20 a month for the iPhone 5 and another $20 a month for the unlimited nationwide 4G plan, $90 a month is still less than comparable plans.

Plan

Monthly Rate

Savings

Annual Savings

AT&T Individual 5GB

$139.99

$49.99

$599.98

Verizon Share Everything 4GB

$110.00

$20.00

$240.00

Sprint Simply Everything

$109.99

$19.99

$239.88

Source: T-Mobile website.

The larger carriers will argue that there are advantages to paying hundreds more a year to be on their networks, but at least there's a value proposition to T-Mobile's offering after all.

The big winner, of course, is Apple. Having the iPhone 5 available on T-Mobile is incremental at a time when the market's worried about its ability to hang on to its market share.

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Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
AAPL
$140.82 (-5.64%) $-8.42
Deutsche Telekom AG Stock Quote
Deutsche Telekom AG
DTEGY
$18.81 (-1.72%) $0.33
Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
VZ
$48.89 (-0.10%) $0.05
Sprint Corporation Stock Quote
Sprint Corporation
S
AT&T Inc. Stock Quote
AT&T Inc.
T
$20.23 (-1.65%) $0.34

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