Cricket Communications is about to
become the first operator in the country to offer a prepaid iPhone.

The Leap Wireless International
subsidiary announced today it would begin selling the iPhone 4S and the iPhone
4 on a no-contract basis starting June 22. 

“We think this helps level the playing
field with postpaid carriers on handsets,” Leap President and CEO Doug
Hutcheson said during a call with analysts.  

The arrival of the iPhone at Cricket
marks a “major step forward” in setting the company apart from the competition,
he said. 

The iPhone 4S and the iPhone 4 will not
be the last Apple devices to make their appearance at Cricket – Hutcheson said
the company “expects to offer new models when they become available.” 

Customers will have to pay more up front
for the hugely popular smartphone, as Cricket is only providing “modest
subsidies” on the device. The iPhone 4S 16 GB model will retail for $500
and the iPhone 4 runs at $400. The device retails for between $100 and $200 at
postpaid providers. 

But Cricket is offering the iPhone with
much lower monthly rates than postpaid plans. Its prepaid plan for the iPhone
runs at just $55 for unlimited voice, text and data – though Cricket’s fair
usage policy caps out data access at 2.3 GB per month. Cricket’s Muve Music
service will not be offered on the device.  

Cricket is banking on its customers
taking a long-term view of costs. Though its subscribers could pay less for the
iPhone at a postpaid carrier, the contract they have to sign to get that low
rate locks them into monthly service plans averaging around $100, which end up
being more expensive over time.  

Cricket claims that the total cost of
owning a prepaid iPhone on its network for two years – the average term of a
postpaid contract – is $1,719. The average cost of owning a postpaid iPhone on
contract over the same period of time is $2,775, Cricket estimates. The $1,000
cost discrepancy will be Cricket’s primary differentiator. 

The iPhone launch is part of Cricket’s
broader initiative to overhaul its smartphone portfolio and introduce new rate
plans over the course of this summer. Hutcheson reiterated the company’s plan
to roll out a fresh line of devices and plans, including “session-based
data” rates. It will also “revise” its upgrade fee when it
introduces its new rates.

The prepaid iPhone will not be offered
in all of Cricket’s stores. The device initially will be available in Cricket
PCS markets covering 60 million people, reaching about 70 percent of its
customer base, Hutcheson said. 

“At this point, the device is focused on
launching in our existing PCS footprint. We’re focused not on selling this
roaming on other carrier’s services,” Hutcheson said. “We’re selling the phones
where we have that primary coverage matched up with the device.” 

Customers will be able to roam outside
Cricket’s footprint. The operator has a longstanding roaming agreement with
Sprint that provides it with nationwide coverage. Cricket’s iPhone is locked
onto its network so it cannot be used with other providers unless customers
unlock the device.

CFO Jerry Elliott described the
financial impact of the iPhone as a “nonevent” for Cricket’s
operating and capital expenses this year. The operator has signed a three-year
contract with Apple estimated to cost about $900 million. The contract covers
minimum purchase commitments expected to represent less than 10 percent of
projected iPhone sales. By comparison, Sprint agreed to pay Apple $15.5 billion
over four years for the iPhone.

Cricket is so far the only prepaid
operator to offer the iPhone. The device could be a critical tool in helping
the company rise above other no-contract competitors like MetroPCS, which does
not currently offer the iPhone. 

Hutcheson said Cricket expected to
benefit from the well-documented iPhone “halo effect” – lower churn,
improved customer satisfaction, higher ARPU and more traffic in stores. The
company had to update its back-end systems and network before it could bring
the iPhone on board, he said. Data usage among its iPhone customers is expected
to be “near” the current usage of its smartphone subscribers. 

Analyst Jeff Kagan doesn’t think Cricket
will be the only operator to offer the iPhone on a no-contract basis.
“Will this mean that other existing networks will now also sell the iPhone
in their pre-paid world? Yes I believe it will,” he said in a research note.
“Expect to see the iPhone being sold as a pre-paid device on multiple
networks going forward.”