As the smartphone adoption rate continues to rise in the United States, carriers and OEM’s are pulling out all the stops to get you to upgrade faster. The latest carrier move has been marketing their enticing new carrier upgrade plans — T-Mobile Jump, AT&T Next, and the soon-to-be announced Verizon Edge* are all geared to offer you amazing savings. But the reality is, they really end up costing you more. These plans are marketed so you can get the latest smartphone every year with little or zero money down. Sound familiar? It should; the car industry has been doing this for years. Though the car industry is a different beast, due to higher upfront cost and faster depreciation, carriers, like car dealers, are covering the depreciation of the device by making you pay more over time, and then reselling that used device to cover their loss. At the end of the day you ultimately pay a premium for being able to upgrade earlier and more often.
*UPDATE: Verizon have officially announced the VZ Edge upgrade program. All the details can be found here. Like T-Mobile Jump you can upgrade after 6 months, however your monthly fee will skyrocket as it requires a 50% payoff in order to do so. “The full retail price of the phone will be divided over 24 months and you’ll pay the first month at the time of purchase. If you want to upgrade after 6 months, just pay off 50% of the full retail price of the phone and you can choose a new phone and start all over again.” Essentially with Edge you will pay more to upgrade even earlier.
JUMP vs. NEXT vs. EDGE
The truth is you can still upgrade to the latest smartphone while paying less at the end of your agreement. Here is how…
All these carrier upgrade plans are made simply for convenience, and for people who are too lazy to use a trade-in service like Gazelle to recover some of that hard earned money. Assuming that you use Gazelle or sell your phone on your own, the cost of doing so will always be less.
Looking back at the carrier plans, the smallest of the carriers — T-Mobile — offers the most attractive option with a substantially lower monthly cost for their upgrade program since it does not include subsidy cost built in to the equation. With both Next and Edge, AT&T and Verizon double charge you for the phone (the original subsidy cost in your bill + the new monthly equipment installment plan – EIP). Even if you purchase an unlocked phone from AT&T, that carrier subsidy is still rolled into your plan, unlike T-Mobile. So, if consumers are short on cash for the new phone, instead of forking over more money to their carrier, they may want to purchase the latest smartphone with an interest free credit card and pay for it over 12 months. Then, come upgrade time, they can just trade it in and still save some cash.
(Trading in your iPhone with Gazelle…easy as pie)
Bottom line: At the end of the day, I would warn consumers against using any of these carrier upgrade plans…unless they enjoy paying more money for their phone. The one tiny glimpse of hope is for that rare user on T-Mobile who will truly upgrade more than twice a year to a certain device (please note, however, that you should check the numbers yourself to see if it is the best option for you). For the majority of us, and especially iPhone owners (on a single phone a year cycle), a 2-year contract in addition to using Gazelle each year is your fastest, easiest, safest and most affordable way to upgrade each and every year. Happy upgrading!
(Typical saving with Gazelle over 1 year)
[Updated July 18th at 10:55AM]