Apple (AAPL) IPhone Upgrade Program: Will It Boost Sales?

At its keynote event on Sept. 9 Apple Inc. (AAPL – Analyst Report) unveiled a smart upgrade plan for users, alongside the latest iPhone 6s and iPhone 6s Plus.

The iPhone maker has priced the new phones similar to the existing iPhone 6 (approx $649 for basic handsets) and iPhone 6 Plus ($749). Under a two-year installment plan, iPhone 6s and iPhone 6s Plus are available for $24 and $27, respectively for U.S.-based users who can buy the device from the Apple store, online or through national carriers and select resellers.

However, the company is also providing an alternative payment option under its new upgrade plan. The new plan can prove to be crucial in driving iPhone sales in the long run.

What’s the Upgrade Program?

The new plan will enable Apple users to get iPhone 6s and iPhone 6s Plus devices for a monthly payment of about $32 and $37, respectively for a two year interest-free period. Though this amounts to higher than the retail prices (at roughly $768 and $888 respectively), Apple is throwing in a few key features and services to compensate.

Users who avail themselves of this program will be entitled to upgrade their devices every year. Also, the program includes the company’s warranty package – AppleCare+ for a 2-year period, which usually costs about $129.

Moreover, the devices sold under this plan will be unlocked, that is, users will have the option to choose (and even switch) carriers depending on the tariff and service packages available.

How Will This Impact Apple Users and Carriers?

The plan does seem a good idea for users who like to get a new phone every year. Moreover, the pricing is such that effectively they are paying only $20 more for the $129 AppleCare (though an insurance package is not very useful in the first year). Additionally, it provides flexibility to users.

Also, it does come as a relief for consumers when carriers like Verizon Communications Inc. (VZ – Analyst Report) and Sprint Corp. (S – Analyst Report) have removed smartphone subsidies from their plans, making the iPhone much more expensive. The new program will compel operators to offer competitively priced programs to attract and retain buyers.