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Subsidized iPhones Or Cheap Data Plans?

 June 08, 2012 09:17 AM

(By Mani) The market for two-year iPhone (or smartphone) contracts is on the decline as the customers are becoming increasingly conscious on their spending on wireless devices and seeking flexible, cheaper data plans.

Sprint Nextel Corp. (NYSE:S) forayed in to the prepaid iPhone space as its Virgin Mobile unit would offer the much sought-after smartphone to its prepaid customers and that too without a fees for contract or roaming.

Sprint's announcement follows after Leap Wireless International Inc. (NASDAQ:LEAP) said last week it would start selling prepaid iPhone on its Cricket Wireless network, but that would only make it available to about 20 percent of Americans. On the other hand, the Virgin Mobile iPhone will be available nationwide at RadioShack Corp. (NYSE:RSH), Best Buy Co. Inc. (NYSE:BBY) and online.

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The recent announcements from Virgin Mobile and Leap Wireless are an experimentation by the wireless carriers to see whether prepaid customers prefer huge upfront costs in exchange for lower monthly bills, versus higher bills and cheaper phones.

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The Virgin Mobile prepaid customers need to shell out $649 for a 16GB iPhone 4S and $549 for a 8GB iPhone 4. Cricket's upfront fee is lower versus Virgin Mobile as it offers iPhone 4S 16GB for $499.99 and iPhone 4 8GB for $399.99.

The main drawback is whether customers can afford huge these high upfront costs as postpaid plans would get their devices at least $100 cheap.

All three leading carriers – Verizon, AT&T and Sprint --- sells iPhone 4S 16GB at $199.99, but they would makeup the low cost with 2-year contract and data plans. Even Sprint offers a postpaid smartphone plan for as low as $79.99 a month, including unlimited data and messaging with 450 minutes of talk time.

Virgin Mobile's cheap data plans are its key attraction. It offers unlimited data and messaging plans for iPhone at $35 per month on Sprint's nationwide network with 300 voice minutes. If a customer opts for automatic monthly payments with a credit card, debit card or PayPal account, the same offer comes at $30. Customers can also use their iPhone as a mobile hotspot through Virgin Mobile for an additional $15 per month.

Cricket will offer iPhone 4S and iPhone 4 from June 22 with its $55 per-month, all-inclusive unlimited talk, text and data plan.

Even leading carriers are trying to cut the subsidies they pay to smartphone makers such as Apple, Inc. (NASDAQ:AAPL) and Samsung, whose Galaxy line up of smartphones are competing head-to-head versus iPhones.

In April, Verizon unveiled a prepaid smartphone plan with unlimited voice and text and 1GB gigabyte of data for $80 on its 3G network. Similarly, AT&T started selling a new data plan that offers 1 GB of data for $25 a month.

The new prepaid move would help Sprint attract budget conscious customers who want a smartphone at a flexible plan that allows them to prepay for minutes and data on a monthly basis.

Sprint began selling iPhone in October and sold 3.3 million units till date and has added 489,000 prepaid customers in the first quarter. However, it lost the lucrative 192,000 contract customers.



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