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iPhone Upgrade Program: An Important Apple Initiative

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Users can choose telecom operators

The newly launched iPhone Upgrade Program is an important growth driver for Apple (AAPL). Under this program, users can now purchase unlocked iPhone 6s and iPhone 6s Plus devices at monthly payments of $32 and $37, respectively. Users can also choose their own telecom (telecommunication) operators, including Verizon (VZ), AT&T (T), T-Mobile (TMUS), and Sprint (S). This will shorten the iPhone upgrade cycle, as users can now upgrade their phones every year.

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According to the Wall Street Journal, the average duration of an iPhone upgrade cycle was 18.2 months in 2010. It increased to 26.3 months in 2015. At the end of September 2015, 31% of the iPhone installed base upgraded to the iPhone 6 or 6s, giving Apple the opportunity to sell its latest iPhones. RBC Capital Markets expects 20% of the 6,400 customers it surveyed to sign up for Apple’s iPhone Upgrade Program.

iPhone Upgrade Program could benefit carriers

Initially, telecom providers offered subsidized iPhones with two-year contracts. Then they offered installment plans where users paid for their smartphones in equal monthly installments. This provided flexibility to customers who like to upgrade their devices on a regular basis. Since iPhone users can now choose their telecom operators, the churn rate is set to improve. It’s important to keep the churn rate low, as a high churn rate indicates that subscribers are moving out of a network too often, thereby increasing costs associated with customer acquisition.

Verizon constitutes 11% of the iShares US Telecommunications ETF (IYZ).

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