Is the iPhone Really Unpopular at T-Mobile?

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Last weekend, my Foolish colleague Sam Mattera suggested that Apple's iPhone is doomed to be unpopular at T-Mobile . Unlike the other major U.S. wireless carriers, T-Mobile does not subsidize smartphone purchases (although it does offer payment plans). Theoretically, at least, this should incentivize consumers to gravitate toward cheaper Android smartphones.

T-Mobile does not offer smartphone subsidies, which could hurt sales of pricey handsets.

Indeed, in Q2 -- the quarter when T-Mobile began selling the iPhone -- iPhones represented only 21% of T-Mobile's smartphone sales. In Q3, that dropped to just 10%, well below the iPhone's market share at AT&T , Verizon , or Sprint .

However, while T-Mobile's value focus and lack of smartphone subsidies are both impediments to the iPhone's success there, it's premature to assume that Apple can't make any headway at T-Mobile. Indeed, the release of the newest iPhones in late September will likely result in a big jump in Apple's market share there in the current quarter. Over time, iPhone adoption at T-Mobile is likely to move much closer to the U.S. average.

Familiar story
iPhone adoption in the U.S. varies widely by carrier. While there are a number of explanations for this phenomenon, the most important reason is that the various wireless operators became Apple carrier partners at different points in time.

AT&T was the exclusive home of the iPhone in the U.S. until 2011. As a result, it has maintained a large base of loyal iPhone users. In last year's Q4, a stunning 84% of all AT&T smartphone sales were iPhones!

Verizon and Sprint introduced the iPhone in February and October of 2011, respectively. Prior to launching the iPhone, both carriers had to promote the Android platform heavily as an alternative. As a result, the iPhone has never achieved the dominant position it enjoys at AT&T with Verizon or Sprint. As of last quarter, iPhone sales made up 51% of the total at Verizon, and around 28% of the total at Sprint.

In this context, the iPhone's lower market share at T-Mobile is less worrisome. Based on the experiences of Verizon and Sprint, it seems to take quite a while for iPhone demand to spool up. In T-Mobile's case, this was probably aggravated by the fact that rumors about the next iPhone were already circulating by the time T-Mobile launched the iPhone 5 in April.

Looking for a bounce
T-Mobile received the new iPhone 5s and iPhone 5c handsets "on time" in September, but the carrier faced particularly severe supply constraints initially. As a result, nearly all of the early upgrades to the iPhone 5s were pushed to Q4 at T-Mobile.

T-Mobile did not have much supply of the new iPhone 5S until Q4. Photo: Apple.

The high percentage of Android users among T-Mobile's current user base and the lack of subsidies will likely keep iPhone penetration below 50% of new sales at T-Mobile for the foreseeable future. However, given the strength of demand for the 5s, it would be surprising if the iPhone does not exceed the 21% share it achieved at T-Mobile in Q2.

Further gains could come in 2014 if Apple launches a larger iPhone, as many tech analysts expect. Android vendors have increasingly turned to larger screens as a means of differentiating their handsets from the iPhone. An iPhone around the 5-inch size range would be a great tool for Apple to convince some Android users -- many of whom use T-Mobile -- to switch to the iPhone.

Foolish bottom line
While the iPhone has a minuscule market share at T-Mobile so far, that has more to do with the late launch than anything specific to T-Mobile. Even if the iPhone's "ceiling" at T-Mobile is lower than at AT&T or Verizon, there is still plenty of upside compared to its relatively low share in the last two quarters.

Q4 will be critical for understanding how successful the iPhone can be in the subsidy-free environment at T-Mobile. For the first time ever, T-Mobile is participating in a new iPhone launch. If the iPhone's market share at T-Mobile continues to languish this quarter, then it might be reasonable to conclude that T-Mobile subscribers just aren't interested in the iPhone.

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The article Is the iPhone Really Unpopular at T-Mobile? originally appeared on

Fool contributor Adam Levine-Weinberg owns shares of Apple and is long January 2015 $390 calls on Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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