Prepaid iPhone from Virgin: $549, but only $30 a month
Prepaid iPhone appears to be Apple's next wave of expansion as Leap and now move into the no-contract prepaid iPhone market.
The high price of the phone comes with an upside: service will start at $30 per month.
That means the phone, plus two years of service, will cost $1,269, excluding taxes. That's nearly $800 less than a subscriber would pay for the same phone, an iPhone 4 with 8 gigabytes of memory, if buying it under the Sprint Nextel Corp. brand. Sprint charges $100 for the phone and $80 per month for service, excluding taxes.
The iPhone has until recently been restricted to contract-based plans. Now, the floodgates appear open for the phone to enter the prepaid, no-contract market, which is aimed at people with low incomes and poor credit. However, the high initial cost of the phone is likely to be an obstacle. Virgin Mobile sells other smartphones for as little as $80.
Last week, Leap Wireless International Inc., the parent of the Cricket prepaid service, said it would start selling the phone on June 22, starting at $400 and $55 per month. Leap's CEO said the phone would likely account for about 10 percent of the phones it sells over the next few years.
For Apple Inc., the maker of the phone, expanding sales to the no-contract segment means a chance to reach buyers who don't have the credit for contract-based plans, or don't want to be tied down with contracts. The number of people on contract-based plans has plateaued, and actually contracted for the first time in the first quarter of this year. Meanwhile, the number of people on no-contract plans is still growing.
In addition to the iPhone 4, Virgin Mobile USA will sell the iPhone 4S, the model launched last year, for $649 with 16 gigabytes of memory.
Virgin Mobile's cheapest plan cost $35 per month, with a $5 discount possible for buyers who set up automatic monthly payment with a credit card, debit card or PayPal account. It provides 300 minutes of calling per month and unlimited texting. Data usage is also "unlimited," but is slowed drastically after the customer has used 2.5 gigabytes since the start of the billing cycle. IPhones with "Sprint" service have true unlimited data.
Virgin Mobile just introduced its first "4G" phone, the $300 HTC Evo V 4G, which can use Clearwire Corp.'s data network in addition to Sprint's. The iPhone, on the other hand, is limited to Sprint's "3G," or third-generation network, which is slower than those of the big iPhone sellers: AT&T Inc. and Verizon Wireless.
Sprint started selling the iPhone last fall, after its two bigger competitors. Sprint said the iPhones it buys from Apple for Virgin Mobile will count toward its commitment to buy $15.5 billion worth of phones over three years. That's a big and risky undertaking for Sprint, which is in a precarious financial position. The company also said it doesn't expect Virgin Mobile's iPhone sales to materially affect its 2012 operating income before depreciation and amortization.
Sprint shares rose 7 cents to $2.79 in early trading.
Sprint, which is based Overland Park, Kan., doesn't say how many subscribers Virgin Mobile has. Sprint over all has 15.3 million subscribers on no-contract plans, under the Virgin, Boost and Assurance Wireless brands. It has 32.8 million subscribers on Sprint and Nextel contract-based plans.