Leap estimated to pay Apple $150 subsidy for contract-free $500 iPhone 4SFor customers who buy a $500 contract-free iPhone 4S through carrier Cricket Communications, its parent company, Leap Wireless, is likely to still pay a subsidy of about $150 to achieve that price.
Currently, a contract-free 16-gigabyte iPhone 4S through the Apple Store or AT&T costs $649. That led analyst Brian Marshall with ISI Group to estimate that Leap is subsidizing the phone by about $150 to offer it at a contract-free price of $500.
Of course traditional carriers like AT&T, Verizon and Sprint offer much heavier subsidies to get the price of the 16-gigabyte iPhone 4S down to $199, but that price comes with a two-year service agreement. Cricket Communications is a prepaid carrier that advertises "unlimited" service at a price of $55 per month.
Though the $500 iPhone 4S through Cricket carriers a higher up-front cost, Marshall estimates the carrier's relatively inexpensive $55-per-month plan will allow customers to break even in about six months when compared to a traditional carrier's $199 subsidized price and higher monthly payments.
For example, comparable voice and data plans from AT&T and Verizon can cost a single user more than $100 per month, so a savings of $50 per month with Cricket would amount to $300 in savings in the first six months. That $300 amount also happens to be the price difference between a 16-gigabyte iPhone 4S at Cricket versus traditional U.S. carriers.
Because of the low-priced monthly prepaid plan, Marshall believes the iPhone on Cricket could gain traction among customers, "depending on quality of service." If so, it would represent sales in a new, previously untapped market for Apple.
Leap announced earlier Thursday that Cricket would begin offering the iPhone 4S and iPhone 4 starting June 22. The relatively small carrier with 6.2 million customers offers "unlimited" data plans under a "fair usage policy" that allots 2.3 gigabytes of data per month.
Cricket's voice and data services operate on a 3G CDMA network, like Verizon and Sprint. Its parent company, Leap, owns the seventh-largest wireless telecom network in the U.S., and offers coverage in all 50 states.