The cost of owning an iPhone 5
With the announcement of T-Mobile's new pricing on data plans, the cost of owning an iPhone 5 over the two year contract period has changed dramatically. T-Mobile's strategy of competing on the price of the plan, as opposed to providing significant carrier subsidies on devices (although see below for more on this) has the potential to alter the landscape of mobile carrier competition. It remains to be seen however, if differences in coverage areas and prices across carriers will draw customers away from the three larger national carriers.
The following calculations are meant to help with decisions about carrier when purchasing a 16 GB iPhone 5, should you want one. Purchasing a 32 or 64 GB iPhone will add additional amounts to each of these totals, but don't change the ordering of the plans. The introduction of the iPhone on T-Mobile is a nice comparison because it is one of the few phones that is available on all four national carriers. I'll try to do these calculations again if Samsung's Galaxy S4 becomes available on the four national carriers.
The cost of owning a smartphone
The first thing to remember about owning any smartphone is that more than half of the cost of owning the phone is not the phone itself, but the data and voice plan that goes with it. As such, typically a customer will spend several times the retail price of the phone over two years in carrier costs. The second thing to remember is that paying $69.99 as a monthly fee to the carrier today is different from paying $69.99 to the carrier 24 months from now. In fact, since money not spent today can earn interest, paying $69.99 to a carrier 24 months from now is strictly better (i.e. cheaper in terms of today's dollar) than paying that same amount to the carrier today. As such, the calculations below involve putting all of the payments that are made (including those two years from now) in terms of today's dollars, assuming that the rate of interest on savings (or, equivalently, the interest that must be paid in order to borrow money today) is the current (as of this writing) WSJ prime rate of 3.25%. Each of the costs calculated below are for plans with unlimited talk and text.
Verizon: $2519.62 (2 GB), $2751.69 (4GB)
Verizon's 2 and 4 GB Shared Data plans allows tethering to up to 10 devices as well as unlimited talk and text. Verizon also has the widest LTE coverage area currently available. Of the $2519.62 in two-year ownership costs, the voice and data plan itself costs $2320.62. For the 4 GB option, the plan costs $2552.69.
AT&T: $2983.52 (3 GB)
AT&T's coverage area, while not as large Verizon's is growing rapidly. That being said, AT&T's two year cost of ownership for the iPhone 5 is significantly higher (8% larger than the 4 GB plan, 18% larger than the 2 GB plan) than cost of ownership on Verizon and more than 30% more expensive than similar plans on T-Mobile. This price is for the 3 GB Data Pro plan (their smallest available data package for smartphones) and includes access to AT&T's wifi network, along with unlimited talk and text. Unlike similar plans from other carriers, you can remove the unlimited text portion of the plan if you would like. Interestingly, removing the texting plan (which totals $20/month) brings down ownership costs of the phone to exactly that of owning an iPhone on Verizon with a 2 GB plan. With the texting plan, the cost of the plan itself (outside of the initial $199 paid for the phone) is $2784.52
T-Mobile: $2273.44 (BYOD), $2187.56 (Pay Monthly)
Ownership costs for the iPhone 5 on T-Mobile depend on whether you bring your own iPhone, which retails at $649, or buy a device from T-Mobile. For both options, the cost of the plan itself is $1624.44. Notice that the cost of the phone when you buy it from T-Mobile is about $563.12. This is $86 cheaper than buying the phone from Apple, but the phone comes locked to T-Mobile's network. It is still unclear how much credit T-Mobile will give if a customer decides to switch phones before the end of a two year contract. If you frequently switch phones earlier than every two years, caution is warranted when buying the iPhone from T-Mobile until we know the size of the penalty for wanting to sell the phone early. Purchasing using either of these schemes is significantly cheaper than any of the other three national carriers.
Sprint has the third largest LTE coverage area but the second highest cost of iPhone ownership. The total cost of the plan on Sprint is $2552.45. This plan also includes unlimited data, although it is widely reported that data rates for Sprint slow down for the heaviest users.
In sum, this new pricing scheme from T-Mobile seems poised to do the most damage to one-time-potential bedfellow AT&T. Between AT&T and Verizon, the carriers with the largest coverage area, AT&T's service is both more expensive and affords a smaller data bundle. Expect AT&T to revise their pricing scheme in the next few months. Sprint has a smaller coverage area, but offers unlimited data for a price that is competitive relative to Verizon. T-Mobile is by far the cheapest option for owning an iPhone 5, but their coverage area is significantly smaller (and their LTE coverage area is vastly smaller) than the other carriers.
The take-away is fairly clear: if you live in one of the cities for which T-Mobile will soon light up its LTE network, T-Mobile is hands down the best deal. If you are only covered by AT&T or Verizon then you should buy the phone on Verizon. You should choose Sprint if they cover your area and you think it likely that you will use more than 4GB of data. If you are covered by everyone except T-Mobile (a not small group of people) and find it likely that you will use less than 4GB of data then you should choose Verizon. You should only get your iPhone 5 from AT&T if their coverage is significantly better than the coverage from any other carrier.