Getting an iPhone 4S for just $30 a month with unlimited data and texting is a tremendous savings, but will consumers see past the high upfront price?
Sprint is testing us. Virgin Mobile, Sprint's prepaid division, just launched a test of the way Americans buy phones?and it could have tremendous implications for the wireless market.
The deal works like this: Pay a higher, unsubsidized up-front price for the iPhone 4 ($549) or iPhone 4S ($649) on Virgin Mobile, instead of just $99 or $199 for the same phones with a two-year contract over on the Sprint mainland. Then, you pay just $30 per month for unlimited data (throttled after 2.5GB), unlimited texting, and 300 minutes. A $40 plan gives you 1,200 minutes, while a $50 plan ratchets voice to unlimited as well. If you want to use the iPhone as a mobile hotspot, it costs an extra $15 per month.
The way the math works, you'll save $750 over the course of two years when purchasing the Virgin Mobile iPhone over the Sprint version, which starts at $80 per month for unlimited data and texting and 450 minutes.
These are killer prices. And since Virgin Mobile is Sprint, it's the same as buying the iPhone on Sprint. Virgin Mobile lacks a 4G network (either WiMAX or LTE, though it's just beginning to switch on WiMAX now), and doesn't offer some of the same bloatware-style services as Sprint, like Sprint TV or the NASCAR app. But since none of this matters on the iPhone, which is 3G and has no bloatware installed, it's virtually the same phone otherwise.
One of the ironies about the way the wireless market works here is that as a rule, consumers pay the most attention to the upfront price. This is why phone buyers will split hairs over whether the iPhone 4S is worth $100 more than the iPhone 4. Never mind the fact that both phones cost practically the same over the span of two years, once the monthly fees are factored in?$2,019 for the iPhone 4 on Sprint, and $2,119 for the iPhone 4S, on that base 450-minute voice plan. The Virgin Mobile iPhone 4, in comparison, costs $1,269 over the same two-year period.
Yet that $100 difference seems to matter so much more at the retail counter.
A Culture of Financing
The thing is, American consumers are allergic to high upfront prices. We live in a culture of financing. We've already seen this play out with unlocked phones, which without exception fail miserably in our market. Aside from the stray phone geek or world traveler, few people in the U.S. want to spend $549 up front when they can get a subsidized phone for $99.
There are other factors at play in the unlocked realm, such as the lack of Verizon- and Sprint-compatible phones, and how many of them only work on T-Mobile at 2G data speeds, but let's put that aside for a moment.
With Virgin Mobile's new plan, this could happen again. Think of how 15-year mortgages offer tremendous savings compared to 30-year mortgages?over $100,000 worth on a $300,000 home with 20 percent down isn't uncommon. Yet more homeowners buy the 30-year option just to keep the monthly payments lower. I've done that. Most of my friends have done that. Few people I know went with the 15-year option.
As for paying $649 up front for the iPhone 4S?which admittedly is approaching its due date for Apple to replace it, whenever that turns out to be?I'd probably have a hard time doing that, too.
Virgin Mobile has already had low pricing for a while, of course. As a whole, the carrier does well, because it's real savings. But the iPhone at $30 is a bellwether. And the fact that Virgin Mobile's lack of 4G or free GPS navigation doesn't matter here, the way it does with Android phones, means the iPhone is as pure a test for the subsidized business model as we've seen.
One option is for anyone on Sprint who lost or dropped their current iPhone, and has to buy a replacement unsubsidized?right there, moving to Virgin Mobile makes perfect sense. But as for the rest of us? It may be that the success or failure of Virgin Mobile's new iPhone plan will say more about the American psyche than anything else.
For more, see PCMag's full review of the iPhone 4S and the slideshow below.
For more from Jamie, follow him on Twitter @jlendino.
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