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iPhone price wars are back as carriers compete for 5G customers

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The Apple iPhone 12 Pro Max is unveiled during a virtual product launch.

Daniel Acker | Bloomberg | Getty Images

The price Americans will pay for an iPhone 12 depends on what cell service they plan to use it with. The three U.S. carriers are actively competing for subscribers by discounting the new iPhone, which goes on sale next week, hoping to lock customers in for years on their wireless service.

It starts with a $30 discount. For people with AT&T, T-Mobile or Verizon service, an iPhone 12 costs $799 before taxes and other fees. If you want one unlocked, without activating it on a carrier, it’s $829.

Customers can get even bigger discounts for the new devices if they are willing to commit to monthly payments for the next few years, if they get unlimited data plans, and if trade their old phone in. For example, AT&T customers can get as much as $800 off an iPhone 12, nearly covering the entire cost of the device.

“That is the largest promotion we have ever seen on an iPhone launch day, topping the $650 offers by all carriers back in 2016 and topping the $700 that Verizon offered to new subscribers last year,” LightShed analysts Walter Piecyk and Joe Galone wrote this week, saying it heralded the return of the “fat subsidy.”

Verizon and T-Mobile are also offering competing promotions.

For Apple, the wave of carrier promotions could boost iPhone sales in the United States by reducing the cost of a new phone. They could also help shorten Apple’s smartphone upgrade cycle by prompting users to upgrade to a new phone sooner. Apple says the typical life-cycle of an iPhone today is three years, and the company times its new releases accordingly, putting out a fairly major redesign every three years, interspersed with more minor updates.

For carriers, iPhone promotions represents an opportunity to shore up existing subscribers and potentially gain new ones, hoping to cover the cost of the devices over multi-year payment schedules.

The new iPhones also support 5G networks, which are still under construction in the United States. Locking customers into 30-month commitments means that some users won’t be able to switch if one carrier’s network suddenly looks better than the other two.

“We believe that Verizon likely sees this as a way to move customers to higher rate plans as well as a way to make sure deployed mmWave spectrum gets utilized,” Goldman Sachs analyst Rod Hall wrote this week. “We have long expected US carriers to help to drive Apple 5G sales though we believe the economic attraction outside the US is less clear given the lack of mmWave deployment.”

Slight differences

All of the carrier promotions in the U.S. have two things in common: Customers have to trade in an old device with some value — a phone from the last few years that isn’t busted — and they have to commit to monthly payments.

But they differ in how they are targeting new customers and how the mechanics of the deals work. The best deal for any given user depends on their current carrier.

Here’s how they break down:

  • AT&T’s promotion applies both to new and existing customers. To get a free iPhone 12, AT&T requires a trade-in, and the customer must activate it on an unlimited plan that costs at least $65 per month for an individual. AT&T’s installment plan lasts 30 months. Piecyk estimates that AT&T is subsidizing new and existing customers to the tune of about $800.
  • T-Mobile is offering as much as $850 in credit on iPhone 12 models spread out over 30 payments. Users have to sign up for T-Mobile service and trade in an old device, and the amount of the discount is tied directly to the value of the trade-in. It’s also offering deals for customers who buy multiple iPhones at the same time. The best deals are reserved for new subscribers, though, with lesser discounts for existing Sprint or T-Mobile subscribers.
  • Verizon is offering a free iPhone 12 for new customers, but they have to trade in an old phone, sign onto an unlimited data plan that costs at least $80 per month for an individual, and stick with it for 24 months. Existing customers can get an iPhone 12 for $15 per month with a trade-in. Piecyk estimates that Verizon is effectively offering a $800 subsidy for new customers.

Back to the good old days

The wave of competing discounts from the three U.S. carriers is effectively a return to carrier subsidies, which was a major factor in the U.S. smartphone market in its early years.

Ten years ago, the price for a new iPhone was often listed at $199, because that’s how much the device cost when users bought it from a carrier with a two-year contract, usually with a hefty early cancellation fee. Those contracts also kept a swath of consumers on a two-year smartphone upgrade cycle.

Carriers started phasing out smartphone contracts in 2013, revealing to many consumers that the up-front price for a premium smartphone is $700 or more, and allowing them to cancel without incurring a big cost.

In the years since, carriers have effectively recreated the same customer lock-in using device payment plans — customers don’t have to pay hundreds of dollars up front for a new iPhone or Samsung Galaxy, but they must commit to paying between $30 and $50 per month for at least two years with a lump sum payment if they cancel early.

Carriers found ways to entice new customers with promotions tied to their device upgrade plans, often by overvaluing a trade-in device. But in the past two years, aggressive promotions became less common and competing carriers often did not match them.

Now, with 5G hyped as a major growth cycle for the telecommunications industry, the three carriers are working to steal customers from the their rivals or lock them in for the next two years using the 5G iPhone.

In the meantime, Apple has boosted its own device upgrade installment plans in several different ways, although it does not offer subsidies like the carriers. People with the Goldman Sachs Apple Card can buy an iPhone and pay over 24 months without paying interest.

Apple also has an upgrade program that combines an iPhone paid in monthly installments with an extended warranty, doesn’t tie users to a single carrier and allows them to upgrade to the newest iPhone after a year.

“One of the things we are doing is trying to make it simpler and simpler for people to get on these sort of monthly financing kind of things,” Apple CEO Tim Cook said last December.


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Congress fails to pass Big Tech legislation ahead of election

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Why Netflix will keep raising prices with confidence

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CEO Of Netflix, Reed Hastings, attends the red carpet during the Netflix presentation party at the Invernadero del Palacio de Cristal de la Arganzuela on April 4, 2019 in Madrid, Spain.

Juan Naharro Gimenez | Getty Images

Netflix announced Thursday it will raise prices for U.S. customers.

Don’t be surprised if you’re reading the same story next year, and the year after that, and the year after that.

The company’s decision to raise its standard plan by $1 per month, from $12.99 to $13.99, and its premium plan by $2 per month, from $15.99 to $17.99, is an essential part of Netflix’s long-term strategy. It’s why Netflix has a market valuation of $218 billion on just $2.8 billion of net income in the last 12 months.

Netflix’s last price increase was January 2019. The video streamer has largely been able to avoid significant price hikes because it has consistently added subscribers, giving investors a clear growth story. But Wall Street is counting on consistent price increases as customer growth wanes. By that time, investors hope Netflix is an inexpungible staple in people’s homes, much like cable TV has been for the last four decades.

Early evidence suggests Netflix is on the right track. Monthly churn for Netflix (near 2%) is far below that of other streaming services, such as CBS All Access (soon to be renamed Paramount+) and Starz, according to data from Antenna, a measurement and analytics company that tracks purchase behavior.

The key to increasing prices without significant spikes in cancellations or dissatisfaction is to convince customers they’re still getting a superb value. The genius of Netflix over the past two or three years has been a subtle shift away from trying to be HBO and toward being a replacement for the entire cable bundle.

Replacing cable, not HBO

“The goal is to become HBO faster than HBO can become us,” Netflix co-CEO Ted Sarandos said in a GQ interview in 2013.

But that’s not actually what Netflix has done. Netflix has focused on a wide breadth of offerings, including animated kids’ shows, breezy romantic comedies, Adam Sandler movies, reality shows like “Love is Blind,” lowbrow documentaries like “Tiger King,” food shows like “The Great British Bakeoff,” and fun game shows like “The Floor is Lava.” It’s hard to imagine any of these series on HBO. And, sure, it’s got HBO-style fare too — movies like “Roma,” series like “The Crown,” and “Sex and the City” knockoffs like “Emily in Paris.” The full suite is similar to a cable bundle.

Ironically, HBO didn’t want to become Netflix until quite recently, despite Sarandos’s claim otherwise. While HBO made the decision to go direct to consumers as an a la carte application in 2015, HBO chief Richard Plepler focused on premium programming while actively shunning most other content. Only recently, after AT&T‘s takeover of Time Warner (and a new slate of executives), has HBO tried to emulate Netflix with HBO Max.

Netflix’s decision to become the cable bundle lite — excluding live events, news and sports — gives the company an excellent argument to raise rates from a price-value perspective. Netflix’s premium service is now $17.99 a month. The average cable TV bill is about $100 a month, according to LightShed Partners. While there are cheaper digital alternatives, YouTube TV is $64.99 a month. AT&T Now (formerly DirecTV Now) is either $55 or $80 per month. Even Sling TV is $30/month.

Meanwhile, the cable bundle quality is likely to decline in the coming years as most premium content gets pushed to streaming services. This should embolden Netflix to keep raising pricing, as it won’t just be the leader among streaming services (thus justifying it as the most expensive offering), but also an increasingly appealing alternative to cable.

WATCH: Netflix shares move higher after company announces subscription price hike



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Apple, Amazon and Facebook warn about pandemic, civil unrest

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Tim Martin | Getty Images

Tech companies had more to report Thursday night than the billions in profits they generated last quarter.

They also painted a dire picture of the world as we head into the winter months with Covid-19 cases spiking across the U.S. and Europe, and the potential for a heavily contested presidential election.

To recap:

Amazon will spend $4 billion on Covid-related expenses this quarter. That’s the same investment it made at the beginning of the pandemic as the country locked down and turned to online shopping instead. Amazon will spend the money testing employees for the virus, cleaning facilities, and making other changes it needs to keep things running in the world of Covid. Amazon is on pace to spend $11 billion for the year just to fight Covid-19.

The company also said it couldn’t accurately predict its operating income for this quarter due to uncertainty caused by the pandemic. Amazon gave extremely wide guidance, predicting between $1 billion and $4.5 billion. Who knows where it’ll actually land.

Apple CEO Tim Cook said that the spike in Covid-19 cases makes it hard for the company to provide sales guidance for this quarter. “If you look at the case count, the case counts are climbing in Western Europe,” Cook told told CNBC’s Josh Lipton on Thursday. “They’re climbing in the United States. And so there’s still a sufficient level of uncertainty out there… we don’t believe that’s an environment to guide into.”

With lockdowns restarting in countries like France and Germany, there’s increasing doubt that people will even be able to buy the hottest gadget in the world in the coming months.

Facebook CEO Mark Zuckerberg warned of civil unrest following Election Day next week. Facebook‘s core business isn’t about shipping and building things, so Zuckerberg’s Q4 warning was different than his peers’, but it was equally as dire.

“I’m worried that with our nation so divided and election results potentially taking days or weeks to be finalized, there is a risk of civil unrest across the country,” Zuckerberg said on Facebook’s earnings call Thursday night. “Given this, companies like ours need to go well beyond what we’ve done before.”

He also warned of an “increased risk of violence and unrest.”

These warnings are coming from some of the savviest business leaders in the world, with reams of data about the state of their businesses, and decades of experience managing crises. They have trillions of dollars in market value on the line. They’re sounding the alarm now to their investors, demonstrating that they’re willing to pour in the resources necessary to keep moving even if the rest of the world crumbles.

These companies have the money to weather the storm. They’ll be fine. They can spend billions adjusting their shipping networks (Amazon), reshaping their retail and manufacturing operations (Apple) and tweaking their algorithms to suppress calls to violence and unrest (Facebook).

It’s not the same for the rest of the country. Small businesses like restaurants and retail stores are struggling under pandemic restrictions with no stimulus bill in sight, while both political parties and their most ardent supporters are focusing on winning the election. While Big Tech companies go into panic mode, the U.S. government had decided to stall until after the election to decide whether or not to provide aid.

If you want to see a clear example of a K-shaped recovery in the economy, look no further than Big Tech companies. They win, while the millions of people reliant on small businesses for their livelihoods lose.


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