Carriers Could Be More Cautious About Promos For iPhone 8

The launch of a new iPhone typically sees a flurry of promotional activity in the U.S. wireless industry, as carriers offer aggressive promotions to court lucrative postpaid phone subscribers.  The launch of Apple’s tenth-anniversary iPhone, due next week, is also likely to be a very closely watched affair in the wireless business given that the device is expected to see its first design refresh in three years, drawing significant consumer interest. Moreover, the smartphone is being launched at a time when carriers have been witnessing sluggish user growth and pricing pressures. However, we believe that carriers could adopt a more conservative promotional strategy for the new device compared to previous years.

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Promotions Are Costly, Don’t Necessarily Pay Off For Carriers 

Last year’s deals on the iPhone 7 were among the most aggressive deals we’ve seen in the history of the device, with the four nationwide carriers essentially offering the base version of the device for free, in exchange for an iPhone 6 or 6S. We estimate that the deal cost as much as $450 per phone, depending on the handset that subscribers trade in.  The payoff from the promos also appears uncertain, as the deals are quickly copied by other carriers (last year’s deal was first offered by T-Mobile), who all effectively end up offering the same device at roughly the same discounted price. This gives consumers less reason to switch over to other carriers. The declining postpaid phone churn rates across the industry are likely a testament to this. This effectively means that the only real winners from these hefty device subsidies are consumers and Apple (which benefits from having its devices subsidized). Potential promos could be more costly this year, as the tenth anniversary iPhone will be Apple’s most expensive smartphone by far, with an expected starting price of $1,000.

Re-Emergence Of Unlimited Plans Caps Upside From iPhone Customers

iPhone users have typically been very attractive for carriers, as they are generally thought to be more affluent and more engaged with their smartphones, meaning that their mobile data consumption was typically higher compared to other smartphone users. While this was quite advantageous in the era of tiered data plans, where users paid according to the data they consumed, the re-emergence of unlimited data plans has essentially put a cap on the revenues and overage fees that carriers can earn from customers. This could also reduce the incentive for carriers to bring on new iPhone users.

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