Verizon's Edge phone upgrade plan is a huge rip off like AT&T's Next

Surprise, surprise, surprise

Verizon today matched AT&T and T-Mobile with a new program called Edge that lets customers get new phones faster by paying an additional monthly fee. Under Verizon's plan, the full retail cost of a phone is divided into 24 monthly installments, and you can upgrade every six months if you pay 50 percent of the device's full retail cost. On paper that compares favorably to AT&T's Next and T-Mobile's Jump programs: Next splits the retail cost into 20 monthly installments and allows an upgrade only every 12 months, while Jump allows upgrades every six months but requires a down payment and additional monthly device payments.

But scratch past that surface layer and the Edge plan is just the same shell game as AT&T Next, designed to sucker customers into paying both the device subsidy built into Verizon's already high monthly fees and the full retail price of their phones. (Like AT&T, Verizon discloses that the subsidy exists in its SEC filings, but declines to publicly divulge them.)

So here's the math for the $650 Galaxy S4, based on widely held industry estimates of a $20 / month subsidy built into Verizon's standard plans. Under Edge, you'll pay $27 a month for a new GS4 on top of whatever plan you already have. That means at six months, Verizon will have collected $282 towards the price of that phone: $162 in Edge payments, and $120 in subsidies from your plan. But Verizon doesn't count the subsidy towards the retail cost of the phone, so if you want to upgrade at six months, you'll have to pay another $163, since you can only upgrade when 50 percent of the phone is paid off. That means Verizon will collect a total of $445 towards a $650 phone if you trade in that GS4 after six months, and it'll get to resell that phone and start the cycle all over again.

The math tilts even more favorably in Verizon's favor if you don't trade in your phone every six months. At 12 months, Verizon will have collected $565 towards that $650 phone: $325 in Edge payments and $240 in plan subsidies — and you still have to trade in the phone. By month 18, Verizon has collected $846: $486 in Edge payments, and $360 in device subsidies. That's $196 in pure profit — money that would have otherwise gone to subsidize the cost of the phone.

If you want to get really mad, just keep the math going to 24 months, at which point you'll have paid $650 in Edge payments for the phone and Verizon will have collected $480 of device subsidies built into your plan. Compare that to Verizon's standard two year contract, which would have cost you just $199 up-front and then nothing additional monthly: the built-in plan subsidy would have paid off the phone in the background, and you would simply walk away with the phone in hand. It is the clearest proof that Edge is designed to keep Verizon's prices high while making you pay for phones more directly.

In the end, what AT&T and Verizon are doing is simple: the cost of device subsidies eats into their bottom line, and they're taking advantage of consumer desire for new phones faster as a way to keep their plan prices high while directly passing on the full retail cost of the phone to customers. This is bad — you can argue about the specific details and which plans might be better at each point in the road, but the final result is that instead of competing to provide better service at lower prices, the two major carriers in America are competing to find innovative ways of maintaining their historically inflated prices while boosting their revenue and providing substantially less value to their customers.

In fact, the simplest way to understand all these new plans is simply to ask whether you need an accountant or an engineer to explain the value of anything Verizon or AT&T do. If it's an accountant, you're getting screwed.