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Summary

Along with the launch of its latest iPhones and iPad, Apple this week introduced the iPhone Upgrade Program, allowing customers to purchase new iPhones on an installment plan directly from the OEM and permitting upgrades every 12 months, regardless of how far into their carrier contract they are. The program also includes Apple Care+, with two years’ coverage for hardware repairs, software support, and up to two incidents of accidental damage.

Early upgrades are a way to control the refurbished-device market

Apple’s move into financing follows several years of US cellular carriers eliminating subsidies, beginning with T-Mobile’s Un-carrier Strategy in 2013. One benefit for operators of offering installment plans rather than subsidies has been the emphasis on selling handsets through their own direct retail channels, and Apple’s new upgrade program can be seen as a response to that trend.

By offering leasing and early upgrades, Apple also gains more control over the supply of older iPhones for refurbishment and reselling purposes. Because the iPhone retains more resale value after one year than other smartphone brands, this opens up a potentially lucrative secondary stream of revenues for Apple. The advantage for the operators, by contrast, is that Apple’s iPhone upgrade program means they wouldn’t have to maintain as much iPhone inventory.

The first financing and installment programs launched were effectively a way to shift power back from the handset OEMs to the operators. With the advent of smartphones, customers became more conscious of the brand of phone they used, particularly in the case of the iPhone and Apple Stores. Financing is typically only offered through operators’ own direct channels, and it lets them once again become the preferred venue for buying new smartphones.

Moreover, the iPhone occupies a much larger share of the US market than in other developed markets like Western Europe. The iPhone Upgrade Program could be exported to those markets and provide a boost in iPhone sales, particularly in countries where operators have been slow to introduce installment programs of their own.

Appendix

Further reading

Handset-financing programs: Transparency, simplicity, flexibility are keys to success, TE0004-000853 (March 2013)

“Sprint’s iPhone for Life leasing program repackages installment concept,” TE0001-000882 (September 2014)

“Apple launches installment scheme in China,” TE0016-000189 (January 2013)

Author

Francesco Radicati, Senior Analyst, Digital Services

francesco.radicati@ovum.com

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