Cricket Communications is about to become the first operator in the country to offer a prepaid iPhone.
The Leap Wireless International subsidiary announced today it would begin selling the iPhone 4S and the iPhone 4 on a no-contract basis starting June 22.
“We think this helps level the playing field with postpaid carriers on handsets,” Leap President and CEO Doug Hutcheson said during a call with analysts.
The arrival of the iPhone at Cricket marks a “major step forward” in setting the company apart from the competition, he said.
The iPhone 4S and the iPhone 4 will not be the last Apple devices to make their appearance at Cricket – Hutcheson said the company "expects to offer new models when they become available."
Customers will have to pay more up front for the hugely popular smartphone, as Cricket is only providing "modest subsidies" on the device. The iPhone 4S 16 GB model will retail for $500 and the iPhone 4 runs at $400. The device retails for between $100 and $200 at postpaid providers.
But Cricket is offering the iPhone with much lower monthly rates than postpaid plans. Its prepaid plan for the iPhone runs at just $55 for unlimited voice, text and data – though Cricket's fair usage policy caps out data access at 2.3 GB per month. Cricket's Muve Music service will not be offered on the device.
Cricket is banking on its customers taking a long-term view of costs. Though its subscribers could pay less for the iPhone at a postpaid carrier, the contract they have to sign to get that low rate locks them into monthly service plans averaging around $100, which end up being more expensive over time.
Cricket claims that the total cost of owning a prepaid iPhone on its network for two years – the average term of a postpaid contract – is $1,719. The average cost of owning a postpaid iPhone on contract over the same period of time is $2,775, Cricket estimates. The $1,000 cost discrepancy will be Cricket's primary differentiator.
The iPhone launch is part of Cricket's broader initiative to overhaul its smartphone portfolio and introduce new rate plans over the course of this summer. Hutcheson reiterated the company's plan to roll out a fresh line of devices and plans, including "session-based data" rates. It will also "revise" its upgrade fee when it introduces its new rates.
The prepaid iPhone will not be offered in all of Cricket's stores. The device initially will be available in Cricket PCS markets covering 60 million people, reaching about 70 percent of its customer base, Hutcheson said.
“At this point, the device is focused on launching in our existing PCS footprint. We’re focused not on selling this roaming on other carrier’s services,” Hutcheson said. “We’re selling the phones where we have that primary coverage matched up with the device.”
Customers will be able to roam outside Cricket's footprint. The operator has a longstanding roaming agreement with Sprint that provides it with nationwide coverage. Cricket's iPhone is locked onto its network so it cannot be used with other providers unless customers unlock the device.
CFO Jerry Elliott described the financial impact of the iPhone as a "nonevent" for Cricket's operating and capital expenses this year. The operator has signed a three-year contract with Apple estimated to cost about $900 million. The contract covers minimum purchase commitments expected to represent less than 10 percent of projected iPhone sales. By comparison, Sprint agreed to pay Apple $15.5 billion over four years for the iPhone.
Cricket is so far the only prepaid operator to offer the iPhone. The device could be a critical tool in helping the company rise above other no-contract competitors like MetroPCS, which does not currently offer the iPhone.
Hutcheson said Cricket expected to benefit from the well-documented iPhone "halo effect" - lower churn, improved customer satisfaction, higher ARPU and more traffic in stores. The company had to update its back-end systems and network before it could bring the iPhone on board, he said. Data usage among its iPhone customers is expected to be "near" the current usage of its smartphone subscribers.
Analyst Jeff Kagan doesn't think Cricket will be the only operator to offer the iPhone on a no-contract basis. "Will this mean that other existing networks will now also sell the iPhone in their pre-paid world? Yes I believe it will," he said in a research note. "Expect to see the iPhone being sold as a pre-paid device on multiple networks going forward."