By Taylor Martin | July 16, 2013 4:48 PM
For the last four years, the smartphone industry has been accelerating. Manufacturers have been pushing new hardware on shorter product cycles, while carriers have failed to adapt to the constantly evolving industry. Here in the US, most wireless providers have maintained 24-month contracts while new hardware tends to arrive on a yearly basis – sometimes closer to six months.
Of course, there are side effects of this mismatch. Mainly, consumers never feel up-to-date.
Not everyone is worried about always having the latest and greatest at any given time. Most are happy with a reliable smartphone, regardless of how old it is. As long as it chimes when it’s supposed to chime, takes pictures when they need pictures, and turns on when they press the power button, you’ll rarely hear a complaint out of them.
But it has become markedly more difficult for enthusiasts who have a deep-seeded desire to stay on the bleeding edge of mobile technology to keep up. With shorter product cycles, phones aren’t holding resale value like they once did. The market is saturated, and there’s always a new device around every corner. (The exception to the rule is the iPhone, of course.)
T-Mobile, however, aims to mix things up a bit. In its new, multifaceted Uncarrier push, it introduced a new service called JUMP! last week, which went live on Sunday. JUMP! allows customers to upgrade their phone as often as every six months, and it includes insurance.
First, customers will have to purchase a new phone on using the Equipment Installment Program (EIP). Then they must add the JUMP! service for $10 per month. Once it’s time for the six-month upgrade, they can trade-in their current phone to become eligible for the same upfront pricing for new customers.
In other words, for a $10 monthly fee, you can buy a phone on an installment plan and trade it in for another device every six months. It’s a perpetual phone installment on a six-month (or longer, if you so choose) cycle.
Today, AT&T also announced its own early upgrade program, called AT&T Next. Next promises no upgrade or activation fees, no upfront cost, no interest, and a new phone every 12 months. Depending on the device you choose, the monthly installment ranges from $15 to $50.
With both JUMP! and Next, you can pay off the remaining balance on your current phone at any time and keep it (or sell it for cold, hard cash). And both seem like viable options for frequently – at least more frequently than the standard 24-month agreement – upgrading your phone.
But are they really bargains? Do they make it more affordable to upgrade your phone more often?
With JUMP! you can pay $149.99 for the Galaxy S 4 upfront, $30 per month ($10 for JUMP! service and $20 for the device installment), and swap devices six months later. After those six months, you will have paid $329.99 before taxes. If you continued forward for the remainder of the year with the Galaxy S 4, it would cost $509.99 ( $390 for the device and $120 for JUMP!), and you would still owe 12 months of $20 to own the phone.
Instead, if you chose to upgrade to a new phone, you would then have to trade-in the Galaxy S 4 to pay off the remaining EIP (not including any fees for damage). To get the new phone, you would then have to make another down payment – we’ll say $149.99 again. For the entire year, that comes out to approximately $659.99 (two $149.99 down payments, $120 for JUMP!, and $240 in installments) before taxes and not including service.
With T-Mobile, you can buy the Galaxy S 4 outright for $629.99 or with $149.99 down payment and $20 per month for 24 months.
If, say, after six months, you wanted to upgrade to a new device, you could simply sell your Galaxy S 4 privately. (Using the EIP, you would first have to pay off the remaining balance.) Banking on resale value is a bit of a gamble, but it can certainly pay off. If you sold the used Galaxy S 4 for $473 (roughly 75 percent of the original value), you will have only paid $156.99. To buy the new phone, you would then have to purchase it at full retail once again or using EIP. With another EIP down payment of $149.99 and the monthly fees, the total amount paid over the course of a year, not including service or taxes, would amount to roughly $426.98.
Not going the EIP route and buying another $629.99 phone would bring the net cost to $786.98. It’s a lot of cash, but the advantage is that you actually own the phone and you don’t have to wait six months to sell it and buy another. Once you put that kind of money in, it serves as a pot value that you constantly flip for new phones, losing a little bit on each flip. However, if you play your cards properly, you can actually gain money on trades and device sales.
I know, I’m throwing around a lot of numbers. But bear with me.
With AT&T Next, the upfront cost is $0 for the Galaxy S 4, but the 20 monthly installments are $32. Over the course of a year, the installments amount to $384.
Sounds great, right?
Think again. Double that number and you realize you’re paying about $128 more for the Galaxy S 4 than you would at retail value. Effectively, you’re paying more money to upgrade 12 months sooner. Fine.
But there’s a bigger issue with AT&T Next. When phones are sold with a service agreement, the retail price of the phone is discounted, meaning the phone may only cost around $200, not $600 … or more. Wireless providers like AT&T and Verizon offset those losses by charging more for the services they provide. The cost of the phone is paid back in full over the course of the agreement. In other words, even if you bring your own device to AT&T, you’re paying for the subsidized price of contracted phones; there is no way around it. Where T-Mobile is contract-free, the service is cheaper – the monthly rates do not include the subsidized cost of hardware.
So while you may think you’re only paying $32 per month for the hardware using AT&T Next, the cost of subsidized hardware is also factored into the cost of service. The price for the hardware is much closer to $50 … maybe even $60. Even if we go more conservative with the estimate, say a total monthly cost of $45 ($32 for the Next installment and $13 from the monthly rate plan) for the hardware, the cost after a year is $540. That’s still $100 cheaper than buying the Galaxy S 4 sans contract. However, you still owe eight more installments before the Galaxy S 4 is actually yours – $360 more, if you count the rate plan, too. That’s a total of around $900 (possibly more) for the Galaxy S 4.
Again, that’s very rough math. There’s no way to know exactly how much of the monthly service charges are markup for hardware subsidies. But the more you look through the numbers, the worse these early upgrade plans – especially AT&T Next – appear.
So would I recommend either of these services?
Solely because AT&T will still charge the adjusted monthly rate for subsidized phones, I could not recommend AT&T Next. No down payment, no interest, and no upgrade fees make it sound like a great deal. But the overall cost is quite high, and customers don’t get a break on their monthly rate. It’s absurd.
T-Mobile JUMP!, on the other hand, is something I could get behind. Effectively, you pay $120 more per year to upgrade twice every year. If you’re one who constantly buys, sells, and trades phones, you know you will eventually get burned on a deal, and the hassle-free nature of paying $10 per month to upgrade every six months is a fair trade. It’s neither cheap nor a terrible deal.