Both T-Mobile and AT&T now have plans that "let" you pay an extra monthly cost to avoid a two-year contract and get a "free" phone upgrade after six months or a year, instead of two years. But both plans are essentially lease options that leave you, in the end, paying more than you'd pay if you bought the phones instead. And like your wise parents or banker friends always told you: Buying is better than leasing. So maybe what these plans will really do is finally, at long last, drive Americans into the welcoming arms of unlocked phones: the best deal of them all.
Last week, T-Mobile unveiled its new Jump plan, wherein you pay up front for twice-a-year phone upgrades, without a contract. Then, on Monday, AT&T followed suit -- sort of -- revealing its Next plan, which offers no-contract phone upgrades after a year.
T-Mobile CEO John Legere pretty well covers Next, tweeting the next morning: "Did AT&t really just start charging full price for devices without discounting their rate plans? OMG. Really? #asktheschoolkids"
And it's true: AT&T's plan is by far the silliest of the two, under which you'll pay more over 20 months for a new phone than you'd pay if you bought it unlocked and outright. But compared to buying unlocked phones, neither is a particularly good deal.
Let's get the math out of the way. AT&T's Next plan has no up-front fee and you don't sign a contract. But you pay the same plan rates you've always paid -- close to or upwards of $100 a month for most smartphones -- and most analysts say those rate plans already include a device subsidy fee, which hasn't gone away with the arrival of Next. So, under Next, an iPhone 5 costs you $32.50 a month for 20 months, or a total cost of $650. That, as it happens, is exactly the cost of an unlocked 16GB iPhone 5. If you're also paying the old existing device subsidy fee, you're basically buying an unlocked phone almost twice over -- a claim that Legere made in outrage after AT&T's announcement.
With the Jump plan, you pay an up-front fee that's as high as $150, $10 per month to participate, and $20 per month that goes toward a new phone. The upgrade cycle on Jump is just six months, rather than a year, so in those six months you'll pay about $330 (again, on top of your rate plan and before taxes) toward a new phone. That is less than the cost of a new unlocked phone, but here's the key with both of these plans: At the end of your term, you have to give your phone back to the carrier. So, no resale value on your old phone.
That's where even T-Mobile's more reasonable plan falls apart: Premium smartphones hold their value. If, say, you bought an iPhone 5 unlocked in March and then the iPhone 5S hypothetically came out in September, you could sell your iPhone 5 for $400 or $500 or even more, and then buy an unlocked 5S -- for more like a couple hundred dollars, instead of $330.
Just as car leases work for some people, Jump's plan does make some sense for people who will truly upgrade every six months, but the math breaks down quickly if you wait longer than that. Also, keeping T-Mobile's selection of phones in mind, you might not find something to upgrade to that often. AT&T's math, however, makes no sense whatsoever.
Americans historically have been reticent to pay full price for premium smartphones, but it's time to start taking a better look at the financials. There are zero reasons to buy into AT&T's Next plan over buying unlocked phones, and few scenarios where T-Mobile's Jump plan makes more sense than buying and selling your own phones without complicated monthly fees. And a little competition would probably be great for unlocked phone prices, which have been mysteriously stuck at about $600 or $650 since the introduction of the original Treo.
I applaud Legere for calling out the contract hell American consumers have been suffering for years and for forcing a response -- albeit a terrible one -- from AT&T. But there's only one real way to free yourselves: Buy your own phone and leave the carriers out of it completely.