ScreenshotOver the last two weeks, three out of the four major wireless carriers in the U.S. have announced new payment plans that will let you upgrade to a new smartphone at least once a year.
And they're all a ripoff, something no budget-aware consumer should ever consider signing up for.
T-Mobile, AT&T, and Verizon each have their own new upgrade plans, called Jump, Next, and Edge, respectively. They all work mostly the same, essentially letting you "rent" your smartphone from the carrier with monthly installments and then trade it in for a new one once you've made a certain number of payments. It's kind of like leasing a car.
While the idea of upgrading your phone once or twice a year may sound enticing to those who crave the latest and greatest gadgets, it's still a horrible deal once you break down the math.
Here's what you probably don't know about your AT&T or Verizon service plans for voice and data. They're so expensive because they have an extra fee baked in to help pay for your smartphone. Carriers don't have to tell you what that fee is, but the consensus is that it's about $20 per month.
That extra fee is why you can buy a top-of-the-line phone like the HTC One or iPhone 5 from your carrier for just $200 if you agree to a two-year contract. The rest of the phone's cost (usually a total of $600 or more for a top-tier device), gets covered over the course of your two-year contract as you pay your monthly bills. (You still have to pay that extra baked-in fee even after your phone has been paid off, but that's a whole other can of worms.)
With AT&T and Verizon's new Next/Edge plans, you're still paying that extra subsidy cost in your monthly plan, plus paying full price for your smartphone. That means your carrier is getting even more cash out of you over time.
T-Mobile's monthly plans are cheaper because it doesn't lock you into a contract when you buy your smartphone. Instead, you make a down payment and pay off the phone in monthly installments. But if you want in on the new Jump upgrade plan, which lets you upgrade twice a year, you have to pay an additional $10 per month.
Let's break it down, using Samsung's new Galaxy S4 smartphone as an example. If you're an AT&T or Verizon customer interested in trying Next/Edge, you're going to be paying a lot of extra dough for the right to upgrade to a new phone once a year.
The full cost of a Galaxy S4 (without the carrier subsidy) is $640. Normally, you'd pay AT&T or Verizon $200 up front for the Galaxy S4 and agree to keep it for two years. The remaining $440 will be paid off over the course of your contract with that baked-in fee in your monthly service plan.
But if you want to go with Next or Edge, you pay nothing up front, and instead pay off your phone directly with an additional monthly payment that's separate from your regular wireless service bill. Verizon makes you pay off 50% of your phone before you can trade it in using the Edge program. AT&T makes you complete 12 monthly payments on Next before you can trade your phone in for a new one.
So on Verizon, you'll still have to pay at least $320 for the right to upgrade to a new smartphone. You'll have to pay $384 on AT&T's Next plan. That's on top of the hidden (~$20 per month) subsidy fee both carriers still make you pay.
In the end, you're still much, much better off paying $200 for your smartphone up front and agreeing to a two-year contract with that baked-in subsidy.
T-Mobile's Jump upgrade plan is a bit different, but it's still an equally bad deal for just about everyone. With Jump, you're paying a monthly $10 fee just for the right to upgrade your phone every six months. However, Jump is a slightly better deal in that it doubles as an insurance plan in case you break your phone.
Bottom line: If you're buying a new smartphone this fall from AT&T or Verizon, you're better off sticking with the traditional subsidized plans over a normal two-year contract. With T-Mobile, you're better off skipping Jump unless you really, really need to upgrade your phone every six months.
More From Business Insider
- The Only Smartphones Worth Buying Right Now [RANKED]
- It Actually Makes A Lot Of Sense For Apple To Release A Cheap Plastic Phone
- Google Cut 5,383 Jobs At Motorola Last Quarter
- Finance Trading
- Technology & Electronics