Sprint Nextel prepaid subsidiary Virgin Mobile USA looks set to upset the competitive iPhone balance across the mobile space, announcing plans to begin offering Apple’s smartphone later this month with rate plans undercutting rivals.
The carrier said it would begin offering the previous generation iPhone 4 8GB ($550) and current iPhone 4S 16GB ($650) on June 29. Prices are similar to the unsubsidized pricing offered by Sprint Nextel.
Rate plans for the devices will begin at $30 per month for 2.5 gigabytes of unthrottled 3G data, unlimited messaging and 300 voice minutes; ratchet up to $40 per month for a total of 1,200 voice minutes; and top out at $50 per month with unlimited voice calling. Those prices include a $5 per month discount for customers that sign up for automatic payments with a credit card, debit card or PayPal account. Customers can also add a mobile hot spot service to their device for $15 per month.
The move comes just days after Leap Wireless became the first domestic no-contract carrier to announce plans to carry the device, saying it would begin offering the iPhone 4 ($400) and iPhone 4S ($500) beginning June 22. Leap noted that it had committed $900 million over three years to purchase devices from Apple. Virgin Mobile USA’s sales are expected to come from Sprint Nextel’s reported agreement to purchase 30 million devices at a cost of $20 billion. Rumors have also been circulating that Sprint Nextel’s other prepaid brand, Boost Mobile, could also add the iPhone to its stable.
Virgin Mobile USA and Boost Mobile earlier this year added WiMAX capabilities to their respective lineups.
Analysts noted that Virgin Mobile USA’s device pricing indicates the carrier is providing basically no subsidy to consumers, placing the total price burden on customers looking to avoid a contract. Carriers offering contract versions of the same model are selling the iPhone 4 for between $50 and $100, while the iPhone 4S ranges between $150 and $200. Surprisingly, smaller, regional carriers are offering the lower price points for the device.
As for its rate plans, Virgin Mobile USA is undercutting the $55 per month, single plan being offered by Leap, which includes up to 2.3 GB of unthrottled 3G data, unlimited messaging and unlimited voice calling. Leap will rely on its own network in markets where it offers service and on a roaming agreement with Sprint Nextel when outside of native coverage, while Virgin Mobile USA relies exclusively on Sprint Nextel’s network for service.
Sprint Nextel currently charges at least $80 per month for iPhone users, an amount that includes unlimited data, messaging, unlimited calling to other cell phones, 450 anytime calling minutes and unlimited night and weekend calling. Customers can add unlimited voice calling for an additional $20 per month.
Verizon Wireless charges $90 per month for their iPhone customers to access 2 GB of data, unlimited messaging, 450 anytime calling minutes and unlimited night and weekend calling. Unlimited voice calling can be added for an additional $30 per month. AT&T Mobility charges $90 per month, but provides 3 GB of data as well as unlimited calling to other mobile devices.
Regional carrier C Spire has a more convoluted pricing structure for its iPhone offering, but its basic all-inclusive plans begin at $80 per month for unlimited data, messaging, 500 anytime calling minutes and unlimited night and weekend calling. Unlimited calling can be added for $20 per month.
Apple’s move into expanding carrier distribution for its current 3G-enabled models could be setting up the launch of an LTE-equipped model expected later this year. That device would likely be limited initially to larger carriers like Verizon Wireless, AT&T Mobility and Sprint Nextel, which are working feverously to expand their current LTE footprints.
Bottom Line: Virgin Mobile USA has thrown down a competitive gauntlet not just across the prepaid space, but across all carriers with its monthly pricing model. The biggest challenge for consumers will be in stomaching the upfront costs of the device, as well as any early termination fee if they are coming from a contract at a rival carrier. This model will be a real test for the industry in its attempts to wean consumers from device subsidies and should provide for some interesting color during financial reporting later this year.
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