“The process of buying an iPhone could be simpler,” proclaimed Apple CEO Tim Cook, who, during the glitz and glamour of the company’s annual product unveil earlier this month, had an unexpected surprise for US iPhone users.
The ‘iPhone Upgrade Program’ is on its way, alongside the launch of the new iPhone 6s, 6s Plus and the iPad Pro.
So, what is it? Well, independent of network or tariff, iPhone users have the option to pay Apple $32 a month in 24 installments for a new unlocked iPhone 6s, which can then be upgraded 12 months later (roughly how long it takes the company to “change everything” and release another iteration of its flagship device).
Describing the initiative, Apple’s website reads: “Because the iPhone Upgrade Program isn’t tied to a single carrier, you don’t need a multiservice contract. If you don’t have any carrier commitments, you’re free to select a new carrier or stick with one you have.”
Simply put, Apple has decided to change an age-old relationship between end user and operator and offer its users the chance to get their new devices pretty much as soon as they come out.
In most markets, even today, customers are offered subsidies on new devices by their provider, at the cost of a locked-in two year service contract.
The only other option for Apple’s die hard fan base is to buy the phone outright, but even Cook must have realised forking out $650 every year gets less and less appealing with each minor update Apple unveils to Siri.
Stateside however, the handset landscape is already quite different, and Apple, as it typically does, has jumped on the window of opportunity.
Reducing operator influence?
Perhaps in part due to the antics of boisterous T-Mobile US’ CEO John Legere and his ‘uncarrier’ philosophy, the two year contract is arguably already dead in the US, with the major US operators also now slowly moving towards handset financing plans, and competing ferociously between themselves.
There’s therefore no doubt that Apple’s upgrade option is great for the consumer as it provides yet another option.
But for operators, playing the middleman in this threesome is becoming all too familiar.
Initially, US operators can claim the move lessens the pressure on its own margins. It could also help to fuel competition, given that it’s now much easier to switch between providers, which will no doubt be welcomed by Sprint and T-Mobile US.
But market watchers have expressed concerns that, in the long term, Apple’s new approach to its handsets could in fact be detrimental to operators in a number of ways.
Not only will it lessen operators’ interaction with customers, impacting their ability to upsell other services, it continues to add weight to the theory that network providers are becoming even more of a dumb pipe.
And while operators may not really feel a pinch at the moment, Daniel Gleeson, senior analyst at IHS Insight, eludes to the idea that Apple’s reach, power and ambition could be telling in the long term.
“Apple will likely want to include the Apple SIM card it introduced on the iPad earlier in the year in future iPhone releases, which could make it trivial for users to switch carriers.”
“Taking the handset out of the update cycle may also make it more difficult for operators to get consumers to upgrade their service plans at regular intervals,” he said.
From upgrades to MVNO?
While the move is arguably a direct play into the mobile space, Apple has always maintained its distance when it comes to rumours around its interests in building or operating its own network.
The latest bout of such speculation came last month, with reports suggesting it was trialling an MVNO service in the US, while holding talks with companies about a European launch.
It quickly squashed the rumours, but no doubt its latest play directly in the mobile space will again add fuel to the fire.
“This does seem like the first step towards an Apple MVNO,” says Gleeson. “However, Apple can pretty much achieve its main aim of weakening the operators’ control over smartphone sales and drive more revenue through its own retail stores with this program without resorting to build an MVNO.”
Gleeson believes that while the upgrade plan makes sense as it “continues to maximise customer loyalty to its brand”, an MVNO means quality of experience for customers would be out of its hands, meaning it could end up shying away from such a service.
“If network coverage is poor, there is nothing Apple could do about it,” he said.
News of Apple’s upgrade initiative was swiftly followed by reports suggesting rival Samsung is set to follow with its own smartphone leasing plan in the coming months.
“It’s a no brainer why Samsung wouldn’t do this”, said an insider speaking to Forbes.
Exact details around the South Korean vendor’s offer remains unknown for the time being, but Samsung could find the launch of such an initiative relatively harder to replicate, given “it has repeatedly struggled to grow any direct relationship with consumers over the years”, says Gleeson.
Other Android based handset providers could also struggle because many of the brands are reliant on operators’ support for sales in the market.
“This move is far easier for Apple to succeed with,” says Gleeson. “It already has massive customer loyalty, it already has people’s credit card information from the App Store, and has even built up trust handling payments through App Store and Apple Pay.”
“The Apple brand is growing from strength to strength.”