Bloomberg News

Leap Becomes First U.S. Prepaid Carrier to Offer iPhone

May 31, 2012

Leap Wireless International Inc. (LEAP:US) will begin offering the iPhone through its Cricket Communications Inc. division, becoming the first prepaid carrier in the U.S. to sell Apple (AAPL:US) Inc.’s smartphone.

The company has entered into a three-year, $900 million purchase commitment with Apple to offer the iPhone 4S and iPhone 4, according to a filing today. Leap will start selling the devices on June 22 with its $55-a-month unlimited talk, text and data plan. The newer 4S model will cost about $500, and the iPhone 4 will be priced at $400.

“Our customers want the best products available,” Doug Hutcheson, chief executive officer of Leap, said in a statement. “Launching iPhone is a major milestone for us.”

The move gives U.S. pay-as-you-go users their first crack at the iPhone, the most popular smartphone at AT&T Inc., Verizon Wireless and Sprint Nextel Corp. (S:US) The challenge will be getting consumers to pay a higher upfront price for the device, which is heavily subsidized by the major carriers in return for customers agreeing to a two-year contract.

The iPhone 4S is available for $199 at AT&T and Verizon with a contract, and $650 if customers buy it without the subsidy. At $500, Leap is picking up some of the consumer’s cost, Phil Cusick, an analyst at JPMorgan Chase & Co. in New York, said in research note.

More Than Typical

“We estimate that Leap will be subsidizing each iPhone by about $100 to $125, somewhat more than its typical $50 to $100 smartphone subsidy,” he said in the report.

Leap shares (LEAP:US) closed unchanged at $5.77 in New York. The stock has fallen 38 percent this year, dragged down by slowing growth in the prepaid market. Diminished speculation that the San Diego-based company is a takeover target also has weighed on the shares.

Shares of Leap’s regional prepaid rival MetroPCS Communications Inc., which doesn’t offer the iPhone, tumbled 27 percent this year before today. The Richardson, Texas-based company has been the subject of recent merger discussions with T-Mobile USA, according to people familiar with the matter.

To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net


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