"$350 for iPhone 6s, Upgrade Your Phone" [Correspondent Diary]

US Carriers Engage in Price Wars to Expand 5G Smartphone Plans

[Image source=Reuters Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] Major US mobile carriers have entered a fierce battle. It is a competition to buy back used smartphones from their 'home turf' existing users at high prices. They are even paying about 390,000 KRW for smartphones that have been on the market for six years.

Verizon, the largest US carrier, recently announced a program that compensates up to $700 for existing phones when purchasing a new iPhone. For purchases of Android phones such as Samsung Electronics' Galaxy S21 Ultra 5G, they compensate up to $800 for the existing smartphone.

The reporter checked how much the iPhone 6S, used as a 'second phone,' would be valued at. It was $350. This means the six-year-old phone was appraised at about 390,000 KRW. The original retail price of this phone was $849. The older iPhone 6 was also priced at $350. From the iPhone 8, released in 2017, the compensation is $700.

That's not all. Verizon is promoting that, for the first time ever, they will exchange broken phones if there are no battery issues.

Instead of returning the existing phone, you can also receive an additional new phone. Verizon offers an extra phone within a $1,000 limit when replacing the phone on an existing line and adding a new line. This means if you buy an iPhone 12 Pro priced at $999, you can get the same phone one more time.

Verizon is promoting this as "the best 5G upgrade opportunity ever."

Carriers are not running at a loss. To receive benefits, you must subscribe to an expensive unlimited plan for at least two years. Verizon's unlimited plan costs $70 per month (excluding taxes). If a family of four subscribes together, the cost drops to $35 per person.

The competition to secure subscribers was led by the second-largest carrier, AT&T. Since October last year, AT&T has introduced a program that compensates up to $700 when returning an existing phone upon iPhone replacement.

The third-largest carrier, T-Mobile, is also running a promotion that pays up to $1,000 when returning an existing phone, conditional on subscribing to an unlimited plan and activating a new line.

The Wall Street Journal reported, "Carriers are selling devices cheaply to encourage subscriptions to unlimited plans."

The Journal explained, "The strategy of giving away phones for free is a return to the telecom market of 10 years ago."

This strategy is proving effective. AT&T secured 1.4 million unlimited plan subscribers in Q4 last year and Q1 this year. This is why Verizon has entered the competition with AT&T.

The fierce battle among US carriers began with the dawn of the 5G era. They have recognized that to increase revenue by expanding the subscriber base and increasing 5G smartphone adoption, they must also manage their 'home turf' users.

US carriers offer customers who purchase a new iPhone a $350 discount on the purchase price when they trade in an iPhone 6S.

US carriers spent about $81 billion (approximately 89 trillion KRW) this year to secure additional frequencies for 5G. Because of the large investment, they have reasons to discount devices and sign up more customers to expensive plans for long periods.

The soaring smartphone prices are also cited as a reason why US carriers are actively providing subsidies for smartphone replacement programs for existing users. The latest high-spec smartphones like the iPhone 12 Pro Max exceed $1,000. As the price of flagship smartphones, which used to be around $600, has soared, consumer burdens have increased.

Competition is also identified as a cause for increased consumer benefits. The acquisition of the fourth-largest carrier Sprint by the third-largest carrier T-Mobile has intensified competition among the top three carriers.

The situation in Korea also became a point of curiosity. LG Electronics recently exited the smartphone market, and Apple has been reported to be conducting aggressive marketing in the Korean market.

The reporter checked how much could be received when returning an existing smartphone upon subscribing to an unlimited plan with a Korean carrier for an iPhone 12 Pro Max. It was 122,000 KRW for grade S. This was about 260,000 KRW less than in the US. Memories of being a 'pushover customer' every time purchasing a smartphone in Korea resurfaced.

Korean carriers have neglected their 'home turf' users. The reporter has used one carrier since 1994 but has hardly ever benefited.

The "Act on the Improvement of Distribution Structure of Mobile Communication Terminal Devices," known as the 단통법 (Dantongbeop), which was supposed to induce uniform device purchase prices, has become a 'chicken rib' that limits consumer benefits. Carriers increased their profits, and the government increased tax revenue through 5G frequency auctions. It raises the question of where consumers can find benefits that no one is looking after.