- Smaller carriers offer cheap iPhone leases to grab customers
- Verizon and AT&T will have to answer, UBS analyst says
Sprint Corp. Chief Executive Officer Marcelo Claure, who has vowed to end the carrier’s seven-year streak of subscriber losses, is now willing to almost give away new iPhones to achieve his goal.
Starting Friday, Sprint stores will kick off iPhone 6S sales with lease offers that start at $1 a month. The limited-time promotion requires customers to trade in their iPhone 6 phones and doesn’t include the cost of service plans. The offer beats T-Mobile US Inc.’s $5-a-month iPhone lease, which until now had previously been the lowest-priced deal for consumers.
“It’s a desperate move,” says Roger Entner, an analyst with Recon Analytics LLC. “You don’t make money on $1 device leasing.” Including the iPhone 6 trade-in value, Entner estimates that Sprint is losing $24 a month on each new $1 lease. That excludes revenue from monthly service charges.
Claure is trying to pull Sprint out of a long tailspin -- eight unprofitable years of losses -- by cutting prices to win users. Sprint was the first carrier to try and lure customers from its larger rivals by offering to reduce their service bills in half. Now with the $1 lease on the iPhone 6S, Sprint continues to lead the price battle lower.
Claure was previously CEO of Brightstar Corp., a Miami-based phone distribution company purchased by SoftBank Group Corp., Sprint’s controlling shareholder. He says he knows the used phone market and the prices iPhones can fetch overseas. Most of the bigger-screen iPhone 6 models are less than a year old and still hold a lot of value.
“If we get the customer’s iPhone 6 in the trade-in, it has a $400 value when we resell it,” Claure said in an interview Thursday. “It will be an accretive promotion for Sprint.”
Sprint is creating a leasing company for its phone business, which will allow the carrier to separate some of the phone costs and installment financing duties. This kind of arrangement will require money upfront for Sprint to purchase devices, and SoftBank, which owns more than 82 percent of the Overland Park, Kansas-based carrier, has agreed to be a minority investor to help fund the arrangement.
The shift to leasing -- a trend that Apple Inc. also jumped on with the introduction of the latest iPhones -- provides consumers new phones with payments spread over several months. Lower lease prices combined with cheaper service plans have helped T-Mobile, and more recently Sprint, attract new subscribers and threaten larger rivals Verizon Communications Inc. and AT&T Inc.
“These prices are going to be compelling and if it is successful in driving volume, which I think it will be, then it is very likely Verizon and AT&T’s marketing teams will have to answer,” said John Hodulik, an analyst with UBS Securities LLC.
Sprint’s $2.5 billion of notes due in June 2024 have dropped 11.2 cents on the dollar this year to 82.6 cents, raising their yield to 10.19 percent from 8.08 percent. Bonds and shares have dropped since Sept. 15, when Moody’s Investors Service downgraded much of the company’s debt several steps to Caa1, which is considered close to default.