S SentinelOne Inc

By Thomas Gryta 

Wireless carriers have spent years nudging customers into paying full price for their expensive smartphones, but a rash of promotions around the coming iPhone 7 shows a willingness to still subsidize the device.

Shortly after Apple Inc. unveiled its newest handset, T-Mobile US Inc. and Sprint Corp. rolled out offers that promise a free iPhone 7 with 32 gigabytes of storage to anyone who turns in an Phone 6 or 6s. Sprint will also accept one of Samsung's latest S7 models.

The move was followed Friday by both Verizon Communications Inc. and AT&T Inc., making the option available to most U.S. wireless customers.

Encouraging customers to upgrade to the newest iPhone and subsidizing the switch is a departure from what the industry has done in recent years. Last year, Apple, Sprint and T-Mobile introduced leases that let customers upgrade frequently for a monthly fee. But the bigger carriers have mostly required customers to pay $649 either up front or in monthly installments. That has resulted in customers holding on to their devices longer and switching between carriers less often.

"Subsidies are like crack," said Craig Moffett, a telecom analyst with MoffettNathanson, noting the iPhone 7 launch opens a window for carriers to get people to switch providers and grab market share. "It is hard to resist the temptation of dangling a free iPhone in front of the customers."

When the iPhone was rising in popularity and people were still converting from flip phones, most people got the Apple device by signing a two-year service contract and paying $200 for a base model. That started to change in 2013, led by T-Mobile, as carriers ditched the contract.

The majority of iPhones are now sold through installment plans. AT&T, the once-exclusive carrier of the iPhone, doesn't even offer the contract option. Many observers believe the industry had successfully moved away from subsidies and conditioned customers to the true cost of smartphones.

Service cancellations are at historical lows in the industry, something that is good for the carriers. But it also means potential switching events increase the urgency for smaller players to capture customers when a new device is released. Customers tend to re-evaluate their provider when buying a new device.

T-Mobile, which was the last major provider to carry the iPhone, has a lot to gain by luring away customers from rivals. "We are the net beneficiary of every major phone launch in recent years," a T-Mobile spokesman said. "This is an opportunity to have more customers switch."

Roger Solé, Sprint's chief marketing officer, said the carrier was planning its offer before T-Mobile's announcement and it pairs with its recent unlimited-data plan offer and network upgrades.

"The iPhone 7 is the last part of the value proposition that we offer," Mr. Solé said. He conceded that others having a similar limited-time offer makes Sprint's effort less effective.

T-Mobile and Sprint highlight that the free iPhone 7 promotion isn't a step back to the old contract days, because customer bills still reflect the cost of the device matched by a credit for that cost. They will see that the device has a real cost but that it is being covered by the carriers, spokespeople said.

For Apple, the promotions are positive because they encourage upgrades as people are waiting longer and longer to replace their devices. Apple sold 230 million iPhones world-wide in its past fiscal year, but sales of the device have declined in each of the past two quarters.

Under the old subsidized upgrades, U.S. carriers would charge $200 upfront and recoup the balance with higher monthly fees. With the newest offers, the carriers will cover some of their costs by taking in used cellphones that they can resell or reuse. Used prices for iPhone 6 models range from about $140 to $170, while used iPhone 6s fetch between $200 and $250, according to Gazelle.com.

Like the old service contract model, the iPhone 7 upgrades require customers to stick around for two years to make it truly free. In most cases, customers canceling their service early will have to pay off the remainder of the device cost. The deals are open to new and existing customers.

Write to Thomas Gryta at thomas.gryta@wsj.com

(END) Dow Jones Newswires

September 09, 2016 16:37 ET (20:37 GMT)

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