AT&T’s $23.34 Apple iPhone 8

The deals from carriers to sell the Apple Inc. (NASDAQ: AAPL) iPhone 8 have started. The Big Four carriers may not get a chance like this one again for over a year. The iPhone 8 discounts are meant to hold current wireless customers for each carrier, or perhaps to take some from the competition. One of the earliest deals is from AT&T Inc. (NYSE: T), which has a “preorder” deal for the iPhone 8 for $23.34 a month at 0% APR for 30 months.

AT&T will sell customers the iPhone 8 for $699, which allows people independence from AT&T’s long-term wireless programs. The 30-month deal iPhone model available for $23.34 is the 64 gigabyte (GB) version.

The requirements to get the low monthly price for the iPhone 8 are dizzying:

Credit approval required. For smartphones only. Tax on sales price due at sale. Requires 0% APR monthly installment agreement and eligible service. Divides sales price into monthly installments. AT&T Next: 30-month agreement with trade-in to upgrade when 80% of sales price is paid off. AT&T Next Every Year: 24-month agreement with trade-in to upgrade when 50% of sales price is paid off. $0 down: Requires well-qualified credit. Limit as low as 2 smartphones at $0 down. Down payment: May be required and depends on a variety of factors. Down payment if required will be either 30% of sales price or a dollar amount ranging from currently $0 to $600 (amount subject to change, and may be higher).

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AT&T takes a very small risk that people will not stay the 30 months as customers. It levies heavy penalties on people who leave early:

 If service is cancelled, remaining installment agreement balance is due. Examples: $749.99 sales price on AT&T Next (30-month) with $0 down is $25 per month, with $225 down (30%) is $17.50 per month, or with $600 down is $5 per month. On AT&T Next Every Year (24-month) with $0 down is $31.25 per month, with $225 down (30%) is $21.88 per month, or with $600 down is $6.25 per month. Activation or upgrade fee: $25. No upgrade fee for line with a smartphone purchased on an installment agreement prior to August 1, 2015

In other words, the customer signs up for expensive handcuffs. AT&T’s position is that it has bought the iPhone 8 from Apple and paid for that iPhone up-front. Without the customer’s 30 months of service, AT&T stands to lose much of the money.

The 30-month, 24-month or 12-month plans lose money for the carrier in the first several months. However, as the contract goes on, AT&T recoups the cost of the phone, its marketing costs and costs to provide the wireless service. If the customer renews beyond the 30 months, AT&T’s profit likely soars.

The margins for wireless carriers have frayed as Sprint Corp. (NYSE: S), T-Mobile US Inc. (NASDAQ: TMUS), Verizon Communications Inc. (NYSE: VZ) and AT&T play for position among customers in a saturated market. The iPhone 8 has given them a brief chance to go after one another with a new chess piece.

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