Virgin Mobile Joins iPhone Prepaid Parade

By John P. Mello Jr.
MacNewsWorld
Part of the ECT News Network
06/08/12 5:00 AM PT

Virgin Mobile will begin offering customers iPhone service on a prepaid basis, closely following on the tail of a similar offer from Cricket Wireless a week ago. Virgin's prices for its iPhones are higher than Cricket's; however, Virgin offers cheaper plans for customers who don't need unlimited voice minutes.

Virgin Mobile on Thursday became the second prepaid wireless carrier in a week to offer the latest versions of Apple's (Nasdaq: AAPL) iPhone for its pay-as-you-go customers.

Under the Virgin plan, customers pay the full freight for a 16GB iPhone 4S (US$649) or 8GB iPhone 4 ($549) but can subscribe for voice, text and data plans that range from as low as $30 to $55 a month.

Unlike the plan announced last week by Cricket Wireless, which is affiliated with Qualcomm (Nasdaq: QCOM) spinoff Leap Wireless, Virgin Mobile's offerings have limits on their usage.

For example, the US$35 monthly plan, which can be discounted to US$30 if a user elects to auto-pay the account, offers 300 talk minutes, unlimited texting and 2.5 GB of data.

There's also a mid-tier plan with the same text and data conditions but with 1,200 talk minutes. The upper tier has unlimited talk and text, but the same 2.5 GB data limit.

Cricket Subsidies

Cricket offers unlimited talk, text and data -- although data is throttled once the user reaches 2.3 GB -- for $55 a month.

The company also slightly subsidizes its Apple offerings. A 16 GB iPhone 4S is $499 and an 8GB iPhone 4 is $399.

Both plans compare favorably with those offered by the major carriers. Post-paid plans from Verizon, AT&T (NYSE: T) and Sprint (NYSE: S), which owns Virgin, charge $200 for a 4S and $100 for a 4, but require a two-year agreement.

To offset that subsidy, carriers charge more for service. Voice, text and data plans from them are in the range of $70 to $100 a month.

Important Milestone

"Apple is working very hard to ensure that anyone that wants an iPhone will be able to get an iPhone any way they want to," Michael Gartenberg, an analyst with the Gartner (NYSE: IT) Group, told MacNewsWorld.

"What we're seeing is a tremendous flexibility on the part of Apple to make sure this device can get into as many users' hands as users want it," he added. "It's an important milestone."

Apple has invested a lot of money over the years developing the iPhone, and now it's starting to leverage that investment by adding points to its distribution channel, explained Bob Egan, founder and chief analyst of the Sepharim Group.

Apple, he explained, built the "mystique" of the iPhone with its exclusivity agreement with AT&T. With its reputation solidly in place, it set out to increase the phone's reach by signing up Verizon and Sprint.

After that, it asked itself, "What can we do now for no incremental cost?" The answer is "quite simply expanding into a tier-free distribution network," Egan told MacNewsWorld. "That's what these prepaid operators represent."

Carrier Rebellion

Apple's embrace of prepaid carriers could create problems for it down the road with the major players. That's because the prepaid carriers are getting the iPhone on favorable terms compared to some of Apple's larger partners.

For instance, Cricket reportedly paid $900 million for a two-year deal with Apple. By comparison, Sprint paid $15.5 billion for its five-year iPhone pact.

"Sprint is already feeling the pain, and anything Apple does to widen its distribution via more acceptable terms for new operators is going to cause anxiety for any of the operators it's done business with before," Egan said.

Signs of carrier dissatisfaction with Apple have already started to emerge, he maintained. For example, AT&T is spending more money marketing the Nokia (NYSE: NOK) Lumia 900 that it's spending on iPhone marketing.

"You're beginning to see the carriers beginning to rebel against Apple, not just outside the U.S., where that rebellion started, but also inside the U.S.," Egan said.

Pleasing Customers

Carriers should be upset with Apple only if their customers are upset with Apple, argued Trip Chowdry, an analyst with Global Equities Research.

"Apple is not in the business to make carriers happy," he declared. "Apple is in the business of making customers happy."

That's the reason that Apple and Google's (Nasdaq: GOOG) Android are so successful, he continued. "Companies that focus on the carriers -- Microsoft (Nasdaq: MSFT), Nokia, BlackBerry -- are a total disappointment. If you're carrier-focused, you can't be customer-focused."

While Apple continues to expand its distribution into the prepaid market, a notable player has been missing from the party: T-Mobile.

"Its network is on a different frequency than the other carriers," Gartner's Gartenberg explained. "Apple would have to build a different radio for it and I suspect its customer base is too small to warrant that."

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