Verizon (NYSE:VZ) is giving its subscribers an easy way to upgrade their iPhone each and every year. Verizon customers who purchase an iPhone 6s or iPhone 6s Plus using the carrier's installment plan will be able to trade in their handset for Apple's (NASDAQ:AAPL) next iPhone in 2016. The move seems motivated by growing wireless competition, but it should benefit Apple's business.
Verizon responds to iPhone Forever, JUMP! On Demand
In August, Verizon simplified its wireless offerings, doing away with two-year contracts completely in favor of installment plans. Verizon subscribers who currently have a two-year contract can continue to use them, but new subscribers must purchase their smartphone outright or pay for it in installments. Verizon's changing policy mimics T-Mobile's, who did away with contracts more than two years ago, but Verizon's installment plan lacked one crucial feature.
T-Mobile allows its subscribers to upgrade their smartphone frequently. With T-Mobile's JUMP! and JUMP! On Demand programs, T-Mobile customers can get a new handset as often as three times per year. Sprint offers something similar in the form of iPhone Forever, a leasing program that gives iPhone owners the right to trade in their handset for the latest model at any time.
In contrast, Verizon subscribers had no easy way to upgrade their iPhone. Verizon's installment plans are really geared around two-year upgrade cycles: After 24 months, the phone will be paid off, and customers can then initiate a new installment plan. Theoretically, they could pay off their remaining balance and start a new installment plan at any time, but that would entail a one-time payment of several hundred dollars.
Under the new policy, Verizon is offering something akin to its rivals. After one-year, Verizon customers can trade in their current iPhone for the latest model, and continue making monthly payments. In the absence of this option, Verizon customers may have switched to a carrier that allowed them to upgrade more frequently, or utilized Apple's own iPhone Upgrade Program. Verizon remains a top wireless carrier and it isn't seeing any significant pressure on its business -- last quarter, it enjoyed postpaid churn of only 0.90% -- but matching its rivals is a move that should prevent any defections.
Verizon comments about iPhone upgrade cycles in the past
For Apple, it may have the added affect of boosting its business. Verizon subscribers that take advantage of the carrier's new policy will purchase more iPhones more often -- directly benefiting Apple's top and bottom lines. Under the standard two-year contract model, or under Verizon's original installment plan, customers may have purchased a new iPhone only once every two years. Now, they may buy a new iPhone each and every year.
Last month, at the Bank of America Media, Communications & Entertainment Conference, Verizon Wireless CEO John Stratton downplayed the possibility of a major shift in smartphone purchase behavior. He argued that smartphones would continue to be purchased as often as they had been before -- about once every 2.5 years on average. But Stratton's comments came ahead of Verizon's iPhone upgrade announcement, and may no longer hold much relevancy.
Apple shareholders should cheer any move that benefits iPhone sales
The iPhone generates nearly two-thirds of Apple's revenue, and iPhone quarterly sales figures seem to drive its shares as much as the company's actual earnings or revenue. Given that Verizon is a major wireless provider, with around 100 million subscribers, any change it makes to its policies could have a meaningful effect on iPhone sales in the quarters to come. Not every Verizon subscriber will take advantage of this program, but its existence is a positive development.