Hindsight is 20/20, or so they say. This is important for Leap Wireless as it seems on the surface that their failure to sell a no-contract iPhone was a doomed concept from the start.
Last year, the company became the first pay-as-you-go carrier to offer the Apple iPhone. Now, they’re on pace to sell half of the iPhones they committed to sell by June. This means they could get stuck with around $100 million in hardware with no way to get ride of them easily.
The obvious reason this didn’t work is the target. Pay-as-you-go carriers focus on lower income or poor credit consumers. These consumers are less likely to be interested in the mid- to high-level pricetags associated with leading smartphones like the iPhone or Samsung Galaxy S III. The less obvious reason is the subsidy model. It works. People are willing to pay hundreds for iPhones knowing that much of the price is covered by the term of their contracts, normally two years. With Leap Wireless, consumers had to fork over $500 up front.
“We are not concerned about…meeting the Apple commitment,” Chief Operating Officer Jerry Elliott said in a conference call with analysts last week. “We think that’s going to be fine.”
Analysts are skeptical. The rest of us are, too.