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The iPhone 6S, Google, & the Potential Removal of the Wireless Middlemen

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Today marks the official release of the iPhone 6S and the iPhone 6S Plus. The newest edition of Apple's ( AAPL ) signature product has been on presale for over a week, and sales have been strong. Apple fans and customers are rather excited for the iPhone 6S and are in line, ready to upgrade their phones.

#Apple fans using old #iphone6 to record other people buying new #iPhone6s pic.twitter.com/AIDAI8FRZa- Bob Redell (@BobNBC) September 25, 2015
SF #iPhone6s line this morning. HT @hawknewton pic.twitter.com/CEr22mzsYE- Mark Sparhawk (@sparhawk) September 25, 2015
#verizon has the best customers! Everyone ready for the new #iPhone6s ? pic.twitter.com/cFFYijtjkC- Frenchye Muniz (@Frenchye_Muniz) September 25, 2015

There is a rather thin line between insane and dedicated for all the individuals waiting in line before stores open to purchase an iPhone. The ensuing months before the New Year are critical for Apple. The company heavily relies on its iPhone to generate revenue, and hopefully all the new features will be a success for the 2015 holiday season.

2-Year Contracts a Thing of the Past: Monthly Payments are the Future

One of the notable programs that was featured in Apple's 2015 keynote event was the company's new payment program for their iPhones. Customers can now make monthly payments to pay off their phones directly from Apple instead of from the wireless companies.

Purchasing an iPhone from Apple has its perks compared to purchasing the iPhone from US carriers such as Verizon ( VZ ), AT&T ( T ), Sprint ( S ), and T-Mobile ( TMUS ). Some of these perks include purchasing an unlocked iPhone, which enables the owner to switch between wireless services relatively easily, as well as Apple Care being included with the monthly payments.

The "Fab-Four" of US cellular companies are moving away from multi-year contracts and phone upgrades on specific dates and transitioning into monthly payments, without locked-in contracts, for the wireless plan and each cell phone attached to the plan. In order for customers to upgrade phones, they have to pay off the rest of the phone's retail value beforehand, without a time restriction, per say.

For example, if you agree to purchase a $720 cell phone, the carrier will bill you $30 per month over 24 months as the minimum payments. The old upgrade system many carriers used only allowed the customer to get a new phone anywhere between 1-2 years after the initial purchase of the previous phone. That upgrade would be either a full or partial upgrade, alterning the price of the new phone for the customer. With the monthly payments, the customer can either make the minimum payments over the 2 years, make larger monthly payments, or pay off the remaining balance any time to enable the customer to get a new phone quickly and free of upgrade technicalities.

Beginning of the End for the Telecom Industry?

Earlier today, Market Watch posted an article detailing the potential ripple effect Apple's payment plan will have on the entire wireless industry. The article reads, "On the surface, payment plans seem like big hardware companies rightfully taking a larger role in smartphone sales. But other companies are taking it a step further by encroaching on the service part of the deal, and that has some analysts wondering whether these incremental moves could one day serve to unseat wireless carriers."

Verizon

This is a fascinating thought experiment to consider. On the surface, it would appear that both the cell phone manufacturers and the cellular providers would need one another. Apple needs a network for its iPhones to be maximized to their full potential and Verizon needs cell phones for their network to be accessed. Verizon et al. have an established network and cellular infrastructure. In order for cell phone manufacturers to maximize their revenue from their products and to cut out the middlemen that are the wireless companies, the cell phone manufacturers will need to build an infrastructure from scratch.

The seeds for this uprooting are already planted. Samsung Electronics ( SSNLF ) is considering a similar direct-to-consumer payment plan for their products as Apple is currently offering. Apple's primary and biggest cell phone competitor in China, Xiaomi Inc, announced it will be offering prepaid wireless plans to compete against China's national carriers.

Back in April of this year, Google Inc. ( GOOGL ) launched its mobile network, Project Fi , for its Nexus 6 owners, using Sprint and T-Mobile networks for cellular and data service. Furthermore, Google has been in the process of expanding its Google Fiber network in different US markets. Expanding Google Fiber, which is an internet and television services similar to Verizon Fios and AT&T Uverse, is allowing Google to develop and increase its data infrastructure.

The idea of Apple or Google developing a cellular infrastructure is not necessarily farfetched. If both companies have the capital to produce a driverless car from scratch , they have means of productions and extra funds to develop their own wireless networks. Eliminating the middleman is usually the goal in the marketplace for businesses because it will cut costs and simplify the purchasing process altogether.

Final Thoughts

If the likes of Apple and Google can commence a coup-d'état against the establishment that is Verizon and AT&T, companies that have histories tracing back to Alexander Graham Bell, and gain control of the wireless communications industry, then it will be a landmark event in history. This is not to say that either Google or Apple, and to a lesser extent Samsung, will not cut out the wireless providers and have their own cell phones on their own network.

However, the major wireless companies, whether it is the US or international, will not go down without a fight. If Apple were to develop a wireless network for its iOS devices and Google were to do the same with its devices, as well as (hypothetically) other phones with the Android operating system, Verizon, AT&T, and the other telecom companies do have options.

Despite being extraordinarily popular, iPhones and Samsung's Note and Galaxy devices, and Nexus devices are rather expensive. Upfront and out-of-pocket, the iPhone 6S Plus costs $749 via the Apple Store , the Samsung Note5 and Galaxy S6 cost $696 and $768 respectively, via Verizon , and the Google Nexus starts at $499 via the Google Store .

The wireless companies could counter, hypothetically, by either developing their own devices or strike deals with Apple's, Google's, and Samsung's competitors, such as BlackBerry ( BBRY ) or Nokia ( NOK ), and sell those devices for a fraction of the price.

With that being said, BlackBerry and Nokia devices use different mobile operating systems and are nowhere near close to having the same level of popularity as the iPhone or Galaxy. The iPhone, Note, and Galaxy are status symbols in society. Since Apple is offering payment plans and Samsung is considering doing the same, what is the point of paying $8 per month for the Lumia 735 or $16.66 per month for a BlackBerry when you just have to pay about $20 per month more to get the latest iPhone?

That is not to say that there isn't a market for people who want to save monthly costs and do not necessarily care what type of cell phone they have - the option to make monthly payments for iPhones makes the device more affordable.

There is a very high probability that Apple and Google will most likely become independent from the wireless companies. The question is when that time will be.

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AT&T INC (T): Free Stock Analysis Report

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APPLE INC (AAPL): Free Stock Analysis Report

NOKIA CP-ADR A (NOK): Free Stock Analysis Report

VERIZON COMM (VZ): Free Stock Analysis Report

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T-MOBILE US INC (TMUS): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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