The holiday season is always a busy month for either upgrading your old phone to a new one, changing carriers and finding a new phone with your new carrier, and/or getting cellular service for the first time for a loved one. Things are not as simple as they use to be. It use to be that you avoided pre-paid coverage unless you couldn't afford contract service because the options and coverage were terrible. Well not anymore. With contracts it use to be about how many minutes and text you needed and data was unlimited. Not anymore. Now with smartphones every where and feature phones (traditional call and texting phones only) being phased out by carriers in the US, carriers are adding new plans to those who can't stand being committed to their smartphone for two years and want a new one every year or even six months. But there is a catch, a big one, and it's aimed right at your wallets and purses. This guide is to help you decide which plan is right for you and if being a "rapid" upgrader is worth it.
Over the course of just a few months in 2013, all four of the largest carriers in the US introduced completely new plans to go alongside traditional contract agreements and prepaid services. With T-Mobile Jump, AT&T Next, Verizon Edge, and Sprint One Up, each carrier is going after the same thing: subscribers who want to get the newest smartphone as quickly as possible. That’s not the only thing that brings these new plans together, however. They’re all extremely complicated. And make no mistake, carriers like it that way — it’s easier to overcharge if customers don’t know it’s happening. So let’s untangle the secrets behind these plans to see which (if any) are a good deal.
The best way to analyze these plans is to take a real-world example. For the charts below, we’re looking at what you'd expect to pay for a 16GB iPhone 5S on each of these carriers using one of their new plans. In this article, we’re looking at both how much you’ll spend if you upgrade your phone once per year and how much it’ll cost if you upgrade every six months.
THESE PLANS ARE COMPLICATED FOR A REASON
To compare the cost on each carrier, we put together similar individual plans. On T-Mobile we calculated using a Simple Choice Plan with unlimited talk and text and 2.5GB of data for $60 per month. For Verizon, we used a Share Everything 2GB plan with unlimited talk and text for $100 per month. On AT&T, we used the company's 2GB Mobile Share plan with unlimited talk and messaging for $80 per month. Lastly, the most comparable Sprint plan is "Unlimited, My Way." It offers unlimited data, talk, and text for $65 per month. (Both AT&T’s and Sprint’s plans typically cost more, but Next and One Up users get $15 off their service plan.) Sprint’s unlimited service is certainly a standout here considering the low price, but it’s important to keep in mind that the carrier’s LTE network doesn’t have nearly the breadth of Verizon or AT&T, and its 3G network is notoriously slow.
Each carrier is splitting up the full cost of the phone ($650 in the case of the iPhone 5S and most other top-tier smartphones) using these plans. With T-Mobile Jump, you pay a down payment and then, depending on the phone model, pay about $20 per month on top of your service fees to make up the rest. Additionally, T-Mobile charges a $10-per-month fee to join Jump and get in on the device insurance included with the plan. AT&T, Verizon, and Sprint, meanwhile, have no down payment and don't charge fees to join their early upgrade plans, but they split up the cost of the phone over nearly two years with what we’re calling "hardware payments."
However, according to industry estimates, most service plans are inflated by about $20 per month to pay back the hardware subsidy on your phone. Some companies, like Verizon, charge customers on early upgrade plans the standard cell service rate in addition to monthly "hardware payments" — effectively making them buy their phones twice. This is why the Verizon Edge is almost always a bad deal.
AT&T also used to roll subsidies charges and cellular plan payments together, which meant its customers on Next were similarly double charged for their phones. Effective December 8th, 2013, however, AT&T is changing its plans to separate subsidy payments from service fees. The separate $15-per-month charge is only levied against those who have purchased a phone on contract, which means those on Next don’t have to pay the fee. It’s a welcome change, but the company has sneakily increased its monthly "hardware payments." For the 16GB iPhone 5S, for example, it’s increased from $27 to $32.50 per month.
Sprint, to its credit, gave its One Up customers a $15-per-month discount on their traditional cellular service from day one, and it continues to do so. T-Mobile, meanwhile, breaks out hardware payments as a separate charge, so paying for your phone twice has never been an issue with Jump.
With all of these plans, the longer you wait to upgrade, the worse the deal gets. With Verizon and T-Mobile you can save money if you upgrade your phone every six months. Compared to signing up for a traditional two-year contract and then paying full price for a new phone every six months after, you can save about $1,000 on Verizon and roughly $1,500 on T-Mobile if you plan on buying four smartphones over 24 months. (AT&T and Sprint’s early upgrade plans don’t offer new devices six months in — you have to wait a year to upgrade.)
However, we think most people who’ll be using these plans will be upgrading about once per year — new phones just don’t come out that frequently. When you wait 12 months to upgrade, you’ll save about $340 on T-Mobile using Jump compared to buying each new phone at full cost on a traditional contract. With AT&T, you’ll save close to $470. On Verizon you’ll be saving about $230. On Sprint, you’ll save roughly $525.
IF YOU'RE LOOKING TO UPGRADE YOUR PHONE ONCE PER YEAR, IT'S DIFFICULT TO SAVE MUCH MONEY BY USING THESE PLANS INSTEAD OF BUYING YOUR NEW PHONE AT FULL COST
Those savings sound good, but the problem is that they are essentially canceled out when you consider that you’ll have to trade in your phone when you upgrade with one of these new plans. With a traditional contract you would keep every phone you purchase — and a one-year-old smartphone should be worth $300 at the very least on eBay or Craigslist. And you’re still on the line for about $300 more in device charges after two years with these early upgrade plans. So you can’t take the savings above at face value. Sure, you may be paying T-Mobile $340 less over two years if you using Jump to upgrade once per year, but you won’t have two valuable smartphones to sell because the carrier takes the devices back. Considering a resale value of $300 per phone, Jump would cost you $260 more in the long run.
The bottom line, then? If you’re going to upgrade your phone twice a year, every year, you could save money using T-Mobile Jump or Verizon Edge. (AT&T Next and Sprint One Up limit you to upgrading only once every year.) But buying new phones at that clip is an extremely expensive hobby and new top-tier devices don’t even come out that often. With the more likely scenario — one phone per year — you stand to save little to nothing by opting for any of these carriers’ new upgrade plans when you consider the resale value of your old phone. And if you don’t upgrade every 12 months you’ll be racking up extra charges for no reason.
SPRINT ONE UP ACTUALLY MAKES A COMPELLING CASE
The one notable exception is Sprint. In our scenario of buying a new iPhone every year using One Up, the plan actually makes a little sense. You’ll save about $525 over two years compared to buying your first phone for $199.99 on contract and spending the full $649.99 to get a new device a year later — the traditional way of upgrading when you’re not eligible. Yes, that $525 difference could be accounted for by the fact that you can’t resell your phones since you have to trade them in to Sprint, but if you’d rather not deal with reselling your device and you commit to upgrading once a year, it might not be a bad choice for you. This is especially true since Sprint’s $65-per-month plan includes unlimited data, unlike any of the other carriers, and it's the cheapest of the bunch. There’s a reason for this, however: Sprint’s LTE network is still very limited, and its rapidly-aging CDMA 3G data is very slow.
It's also worth noting that if you're already purchasing handset insurance for $8 per month, T-Mobile Jump could be worthwhile since it only costs $2 more on top of that. However, we typically don’t recommend such insurance plans for the majority of users.
AT&T NEXT ISN'T A RIP OFF ANYMORE, BUT IT STILL ISN'T WORTH IT
AT&T Next, meanwhile, isn't nearly the ripoff it used to be. With the pricing structure changes set to come into effect on December 8th, you're no longer forced to pay for your phone twice if you sign up for Next. However, the savings Next can net you over two years when upgrading once per year aren't significant enough to make the early upgrade plan a winner, since you would be able to resell your phones if you signed up for a traditional plan instead. AT&T is also introducing a second version of Next that lets you upgrade at 18 months instead of 12. Getting a new phone after a year and a half largely defeats the purpose of an early upgrade plan in the first place — it's just too long. AT&T is offering lower monthly hardware payments with the 18 month schedule, but since you'll be paying it for a longer amount of time the savings are lost. You stand to save a few hundred dollars over a three year period using the 18 month cycle, which puts it in the same position as the 12 month plan — it's not worth it.
Ultimately, most everyone is better served by sticking with their traditional cell phone plan and buying a phone at full cost when you can’t take that old smartphone any longer. You stand to gain such little by opting for Jump, Next, Edge, or One Up — and you put yourself at risk of losing a great deal more if you fail to upgrade as soon as you’re eligible to — that we can’t wholeheartedly recommend any of these plans. Sprint gets a tentative pass, but for the rest, it’s best to think of these "upgrade plans" as extended payment plans that take advantage of customers who want the newest phones and want to pay little up-front by charging them massive fees as the months roll by.
Note: Calculations above map out the costs an individual would pay if his current contract were complete and he signed up for the early upgrade plan offered by his carrier when buying an iPhone 5S. We show how much it would cost to upgrade your phone once per year for two years as well as the cost of upgrading once every six months for two years. The cost of each phone after the first iPhone 5S was calculated using the same price that the 5S costs today.
To see if you really are better off signing up for these new plans, we compare the cost of using one of these early upgrade plans with buying a new phone before your traditional two-year contract ends. This "traditional" method entails signing up for a new two year contract and buying a subsidized iPhone 5S for $199.99. After a year, you then pay full retail price to get a new device ($649.99 for iPhones).
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