T-Mobile USA Inc. will begin offering Apple Inc. (AAPL)’s iPhone next year, becoming the last of the four largest U.S. carriers to offer the best-selling device.
Deutsche Telekom AG (DTE), T-Mobile’s parent, disclosed the agreement to sell Apple products in 2013 in a statement today. Larger U.S. competitors Verizon Wireless, AT&T Inc. (T) and Sprint Nextel Corp. (S) all sell the iPhone.
The iPhone, once offered exclusively by AT&T in the U.S., has evolved into one of the most widely available handsets in the country. Adding Apple’s device may help T-Mobile lure more customers to long-term contracts and hold on to more subscribers.
“A certain number of people wouldn’t come to our stores if we didn’t have the iPhone,” T-Mobile Chief Executive Officer John Legere said. “We worked very hard for a deal that made sense for us.”
The iPhone is the No. 1 smartphone in the U.S., outselling all handsets using Google Inc.’s Android software combined in the 12 weeks through Oct. 28, according to Kantar Worldpanel ComTech. The agreement with Apple will add to T-Mobile’s profit and cash flow starting in 2014, said Legere, speaking at an investor summit in Bonn today.
Without the iPhone, T-Mobile has struggled to keep customers from choosing other carriers. T-Mobile has lost 1.03 million monthly contract customers, or more than 4 percent of its subscriber base, since the end of last year.
T-Mobile had 8.7 percent of U.S. contract customers at the end of 2011, according to Bloomberg Industries research.
A year ago, Sprint became Apple’s third U.S. carrier partner when it agreed to a four-year, $15.5 billion commitment to sell 25 million to 30 million iPhones. Due to the heavy discounts carriers place on smartphones to lure customers into two-year contracts, the initial cost of iPhone sales have cut into profit margins.
T-Mobile’s agreement with Apple isn’t as extensive as Sprint’s, Legere said.
“This is not a volume commitment of the size that Sprint agreed to or anything close to it,” he said. “This device rollout will be a dramatically different experience,”
Legere said he plans to position T-Mobile as the “Un- Carrier” to disrupt the industry. Part of the strategy is for T-Mobile to start offering new smartphones on installment plans next year rather than selling them with heavy discounts. The move will help T-Mobile avoid absorbing $200 to $250 in price cuts on the average phone sale, Legere said.
T-Mobile will soon start an “in-your-face” style advertising campaign aimed at the larger carriers, Legere said. That theme highlights some of the competitive tension coming to the U.S. market as the iPhone playing field becomes more level, said Craig Moffett, an analyst with Sanford C Bernstein & Co.
“A T-Mobile iPhone is good news for Apple, good news for T-Mobile, and good news for consumers. But it’s bad news for everybody else,” said Moffett. “By ‘everybody else,’ I mean Sprint, AT&T, and Verizon.”
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