Annual iPhone Upgrade Programs Should Boost Replacement Cycle with or without Subsidies

$AAPL GraphI've been hearing how sales and replacements of iPhones will be slowing due to a number of things, including the vanishing of subsidized carrier plans. I want to give you the opposing argument, an argument fueled by the ability to upgrade yearly while potentially paying less money and simultaneously satisfying my sweet tooth of having the newest iPhone every year.

In the past AT&T and Sprint made all too much money on me. If I had traded in my phone at exactly the end of the 24th month cycles of past plans, I would only have bought an iPhone only once. But what happened was that I held onto my iPhone 3G about four months too long and held onto my 4S kicking and screaming until the iPhone 6 Plus came out. Realistically, I paid for my iPhone 4S almost twice if you add up the monthly checks I wrote to Sprint.

I was paying Sprint $126 per month and buying AppleCare on top of that. So up front I paid Sprint $399 for my iPhone 4S. If I kept to the letter of the contract and divided that over 24 payments, which I didn't, that would down payment would have added some $16.66 per month. 

So $126 + $16.66 + lets say $5 per month for AppleCare = $147.66 per month, or for two years $3,544. That's what the old subsidy system meant for me, and I think those numbers will resonate with a lot of iPhone users no matter what service they use.

Let's compare that old system to Apple's new unlocked leasing program where I can get a new iPhone every year with AppleCare. For the Plus model, I'd pay $44.91 to Apple + $55 to Cricket for a total of $99.91 per month, or $2,397.84 for two years.

If take the $3,544 from the old system and subtract $2,397, I get a savings of $1,147 over two years—or $573 savings a year—for an unlocked, top of the line phone that gets switched out every year. 

What am I giving up? I don't get to sell the phone since it's never really mine, but that doesn't phase me. What I got for my iPhone 4S hardly made up for the wait and annoyance of not having the latest and greatest. True, I never own the phone, but so what. I'm so invested in the Apple ecosystem, that doesn't bother me at all.

What do I get? An interest free loan where I always have the newest iPhone. And if it breaks, I have AppleCare+ to replace it. If people start seeing the benefits as I see them, it could be a valuable, consistent and profitable revenue stream for Apple, and that doesn't count the refurbish revenue from the units traded in every year.

So get warm and comfortable with leasing. You do it with your music already, now bring that warm fuzzy feeling to your phone. Get a new iPhone each year if you like with no downside. In my eyes, if people embrace this concept it will speed the upgrade cycle rather than slowing it down as more and more people opt for a new iPhone every year instead of the usual every two years.

Rather than hurting Apple, I expect that will help the company.

David Winograd's voiceover work can be found at