Apple Extends Pre-paid iPhone Push Adding Virgin Mobile

By David Zielenziger | June 07 2012 12:41 PM

Apple (Nasdaq: AAPL), the world's most valuable technology company, extended its push into the pre-paid mobile market by adding Virgin Mobile USA, which will sell the device for between $30 and $50 a month.

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Virgin Mobile is a unit of Sprint-Nextel (NYSE:S), the No. 3 U.S. wireless carrier, which acquired it from Sir Richard Branson's Virgin Group in 2009.

Last week, Cupertino, Calif.-based Apple said it would sell pre-paid iPhones through Leap Wireless International (Nasdaq: LEAP), which operates the Cricket wireless service. Leap, based in San Diego, signed a three-year deal and agreed to pay Apple as much as $900 million through 2015.

Sprint, based in Overland Park, Kan., said sales of the iPhone 4S and iPhone 4 will start June 29 without a contract and the phones will operate on its national network. Last year, Sprint became Apple's third U.S. carrier to offer the phones after agreeing to pay the company as much as $15.5 billion over five years.

For Apple, the move into the pre-paid market comes as the company faces more competition from rivals based on Google's (Nasdaq: GOOG) Android from Google itself, now that it owns the Motorola brand, as well as market leaders such as Samsung Electronics (Seoul: 5930). Later this year, phones from Nokia (NYSE: NOK) and others are to be shipped based on the new Windows 8 OS from Microsoft (Nasdaq: MSFT), the world's biggest software company.

Rather than buy an iPhone and sign for a two-year contract, the pre-paid service could help Apple attract a different class of customers while protecting its market share. In the last quarter, for example, Sprint sold 1.5 million iPhones; Apple reported selling 35 million iPhones in the same period.

Apple, though, lost its rank as the No. 1 seller of smartphones to Samsung in the first quarter, IDC reported. Samsung's market share was 29.1 percent compared with Apple's 24.1 percent. A year earlier, Apple's share was 18.3 percent compared with Samsung's 11.3 percent.

Apple's desire to move into the pre-paid sector could also attract others in the field, most likely Metro PCS Communications (NYSE: PCS) where former Apple CEO John Sculley is a director.

By Thursday afternoon, shares of Apple rose $1.95 to $573.41, while Sprint's gained 2 cents to $2.74 and Leap International's fell a nickel to $5.09.