Since Sprint has finally joined the other three big US carriers in offering an early upgrade plan, we've updated this article on September 20th, 2013 to compare all four.
Over the course of just a few months, all four of the largest carriers in the US have 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 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. On AT&T, we used the company's new 2GB Mobile Share plan with unlimited talk and messaging for $95 per month. For Verizon, we used a Share Everything 2GB plan with unlimited talk and text for $100 per month. Lastly, the most comparable Sprint plan is "Unlimited, My Way." It offers unlimited data, talk, and text for $65 per month. (It usually costs $80, but 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 and Verizon, meanwhile, charge no down payment, but split up the cost of the phone over nearly two years with what we’re calling "hardware payments."
However, according to industry estimates, your monthly service plan from AT&T or Verizon is inflated by about $20 per month to pay back the hardware subsidy on your phone. By paying for both the monthly hardware payment demanded by these plans as well as your normal cell service, you’re buying your phone twice. This is what makes makes both AT&T Next and Verizon Edge almost always a bad deal. Sprint also uses part of its service charges to make up for the hardware subsidy, but to its credit, the carrier isn’t using its early upgrade plan to take advantage of its customers in a blatant way like AT&T and Verizon. One Up customers have their traditional cellular service discounted by $15 per month, meaning you’ll effectively only pay back your subsidy once through the plan’s "hardware payments."
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 $2,000 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 $300 on T-Mobile using Jump compared to buying each new phone at full cost on a traditional contract. On Verizon you’ll be saving about $230. On Sprint, you’ll save roughly $600. With AT&T, meanwhile, you’ll hardly save any money at all. If you qualify for AT&T's traditional early upgrade offer, which lets you get a new phone six months into your contract for a $250 premium over the standard two-year contract pricing (making a total of $449.99 for the iPhone 5S, for instance), using Next to upgrade 12 months in will save you just $38 in the long run. If you don't qualify for early upgrade pricing you'll still only save about $250 with Next.
If you're looking to upgrade your phone once per year, it's difficult to save much money by using one of 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. So you can’t take the savings above at face value. Sure, you may be paying T-Mobile $300 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.
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 a very 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 some sense. You’ll save about $600 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 $600 difference could be accounted for by the fact that you can’t resell your phone since you have to trade it in to Sprint, but if you’d rather not deal with reselling your device and you commit to upgrading once a year, it might make sense for you. This is especially true since Sprint’s $65-per-month plan includes unlimited data, unlike any of the other carriers. 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.
Don't sign up for AT&T Next — it's a bad deal any way you slice 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. Sprint does make a compelling case for customers to sign up for One Up thanks to that $15-per-month service discount, but you have to make sure to upgrade every year to get the full benefits of the program. T-Mobile Jump or Verizon Edge only make some sense if you have a true aversion to selling your old smartphone yourself and you need to upgrade your device more than once a year. (It's worth noting, however, that if you're already purchasing handset insurance for $8 per month, Jump could be worthwhile since it only costs $2 more on top of that.) AT&T Next, meanwhile, is a bad deal any way you slice it. Sprint gets a 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, traditionally, though AT&T offers early upgrades for $449.99). This method differs slightly for T-Mobile, which doesn’t use two-year contracts.
Illustrations by Dylan C. Lathrop.