Quantitative Look at Verizon's Next Priceing

As Nilay Patel points out in his article, the Next plans from Verizon are a ripoff, and while he goes through some of the numbers, I wanted to take a look exactly at how the different plans work under different circumstances.

I want to look at the cost that someone pays for their phone for different lengths of time between upgrades, so first, we need to look at the plans themselves (at least as far as I understand them).

I am going to look at the cost structure for a GS4 using the same numbers Nilay presents, but with a couple fancy graphs.

Normal Plan: $200 down, plus a $20/month subsidy, upgrade after 24 months.

Next Plan: $20/month subsidy, $27/month next plan, $325 minimum paid per phonethrough next plan.

Full unsubsidized price of phone: $650.

First lets take a look at the cumulative cost of a GS4 from the time of purchase in months for the 3 cases:

(sorry that some of the text gets cutoff, but all of the content is there)

Cumulativecost_medium

As we can see, the cost paid for the Next plan starts off lower, but rises at a faster rate than the normal plan, and it would seem that if you upgrade within 7 months or so, that the Next plan is better. However, your next payments have to add up to half the phone costs or you have to pay the difference, so upgrading quickly costs more. However, for the normal plan, subsidized pricing only occurs every 24 months, so upgrading quickly similarly costs more as well.

Instead, we should be looking at the cost per phone if you want to upgrade every X months. For the next plan, it involves paying $325 in fees (plus the $20 subsidy) for short upgrade cycles followed by the $47/month after the next fees pass $325.

For the normal plan rate, I assume a subsidized phone is purchased if available, and if not available (within 24 months of last subsidized purchase), the phone is purchased for $650. Thus for a 5 month upgrade cycle, every 25 months you get 5 phones, 1 subsidized (plus $20/month) and 4 unsubsidized phones, which works out to $660 per phone.

Priceperphone_medium

The key to this plot is that the Next phones must be returned to upgrade. So while you will pay less per phone all the way up through a 15 month upgrade cycle on the next plan, once you upgrade, you miss out on the resale value of the phone. If you assume a resale value on a $650 flagship phone that is less than a year old to be worth at least $200, which should be easily doable I believe, the plot changes to:

Priceperphonesold_medium

So this is why these plans are a ripoff. If you want to be buying phones more than once every 6 months, and you can only sell your 6 month old flagship phone for $200, it could be a good deal, but with manufactures all on a yearly cycle now, you end up paying much more per phone to upgrade every 12 months.

So the end takeaway is that if you are forced onto a plan with a built in $20/month subsidy, but want yearly upgrades, your best bet is to buy a subsidized phone every other year, and buy an unsubsidized phone on the other years, saving $100 per year, rather than go with the Next plan.