Last week, Apple (NASDAQ:AAPL) surprised many during its reveal of the iPhone SE with a $399 starting price point. There were many analysts on the street expecting the device to go for $50 to $100 higher, with some even thinking it could start at $549. I think a large part of this decision, especially when it comes to the US, has a lot to do with the ever changing wireless carrier landscape.
For those looking to get a new phone in the US, the situation may be extremely different from when you got your current device. In the past, you were likely locked into a two-year agreement with the wireless carrier. You probably also forked over $199 to purchase your iPhone upfront or more depending on the model.
Most carriers still allow you to buy the phone upfront (which is very costly), but they also are allowing consumers to pay in monthly installments, generally 24 periods. In the table below, I've compared the monthly costs for certain Apple devices from Sprint (NYSE:S), AT&T (NYSE:T), Verizon (NYSE:VZ) and T-Mobile US (NASDAQ:TMUS). I've taken this data directly from each carrier's phone site, so there may be other deals available for certain models.
*AT&T uses a 30-month payment plan. For comparison purposes, I've redone the math to match other carriers' 24-month plan.
When Apple went to the larger screen iPhone 6, you could get the 16GB model for $199 with a two-year contract. If you want the 6s currently, you're likely forking over several hundred dollars over the 24-month period, in addition to what you are spending on your talk/text/data plan. As a point of reference, a $199 phone would cost you roughly $8.29 a month if you paid for it with 24 equal monthly payments. As you saw in the table above, that is no longer the case.
If you are already spending say $40 to $60 a month on your plan, do you really want to spend another $25 to $30 (or more) for your phone? Apple likely saw how consumers were pushing back a bit against this new pricing structure when it came to the SE. You'll notice that for some carriers the SE is actually cheaper per month than the 5s, the phone that the SE is essentially replacing. At this point, 5s demand will likely crater, and it will be interesting to see how long the 5s remains around. Perhaps the price will eventually be cut or maybe Apple shifts it toward emerging markets looking to steal some market share in the lower tier.
Only time will tell if the SE turns out to be a success in the US, although it appears that pre-orders in China have been very strong. With US carriers going to monthly payment plans for phones, it appears consumers were holding back on purchasing new phones that cost $20 or more in addition to the service plan. With the SE going for $10 less a month than the starting price of the 6s line, those not caring about screen size are more likely to jump on board. This likely influenced Apple's decision to start at a $399 price point. While there may be some cannibalization of larger screen devices, Apple will ultimately win if it can increase total unit sales of the iPhone.
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