(Photo: Rob Pegoraro/Yahoo Tech)
The next time you buy a phone, your wireless carrier may want you to pay a lot more for it — think $650 for an iPhone instead of the $200 you paid last time around. That’s what Verizon Wireless recently did: It did away with phone subsidies (which is what made phones relatively cheap in the past) along with its two-year contracts.
But before you get mad and vow to switch to whoever will sell you the next iPhone at a subsidized price (while that option remains), you should get out a calculator first. Because the math isn’t as simple as you might think, and paying the full price for your phone — either up front or in installments —often makes sense.
Here are a few of those scenarios.
You use a lot of data or have multiple lines
Subsidized phones make the most sense when you use little data and pay for just a single line. But if you use a lot of data or have multiple lines on your account, buying an unsubsidized phone can save you money over time.
That’s not just because AT&T and Sprint discount their service if you pay full price. They also offer a deeper discount if you buy more data: 15 GB at AT&T, 12 GB on the Sprint “Family Share” plans. (Even single-line shoppers can choose the latter over Sprint’s pricier, tethering-excluded unlimited rate.)
Let’s take one example: Say you want a 2 GB data plan for an iPhone 6 at AT&T. That service will cost you $50 a month on AT&T’s “Next” unsubsidized deal, under which the phone will cost you the full $650 list price. Compare that to the $65 a month you’d pay for the same 2 GB on a two-year contract that lowers the up-front phone price to $200. In this case, you’d save $90 over two years ($1,760 versus $1,850) by taking the subsidy.
But suppose you wanted a 5 GB plan for each of two iPhones? The cheapest AT&T plan covering that usage with a subsidized phone would be a 15 GB plan costing $180 a month. If you bought the phones at full price, you could get that same data for $130 a month. Result: Opting for a low phone price would end up costing you $300 more over two years ($4,720 in all) than if you’d bought the phones without the subsidies ($4,420 total).
(You can explore these scenarios yourself at AT&T’s price planner.)
You travel internationally
If you use AT&T and you travel internationally, its subsidized phones are a bad idea: They’re locked out of being moved to any other network until you conclude your contract, restricting your global use to either AT&T’s pricey “Passport” packages or horrifyingly expensive a la carte rates. The same policy handcuffs unsubsidized phones that have installment plan payments left.
So if you’re an AT&T customer and you want to pop in a prepaid SIM or use a cheaper third-party roaming service such as KnowRoaming when you arrive at your overseas destination, you need not only an unsubsidized phone but also one that has no pending payments.
That’s also the rule at subsidy-free T-Mobile: If you buy a phone on its installment plan, it’s locked until you pay it off. At least this carrier has a great international-roaming option that includes free low-speed data across most of the world.
The situation isn’t as bad at Sprint, where the carrier will unlock a subsidized phone once you’re 90 days into your contract and offers 1 GB of free high-speed roaming data in the majority of North and South America covered by its new Open World plan.
Meanwhile, Verizon sells all of its phones unlocked for international use, even ones with 23 months of installment-plan payments due.
You don’t use an iPhone
(Photo: Yahoo Tech)
If you buy an iPhone subsidized from a carrier or at full price from Apple, it has the same apps and its software updates arrive at the same time. That’s not the case with other smartphones: Carriers feel free to tart them up with “bloatware” apps and then subject updates to months of additional testing before releasing them to customers.
Android users have justifiably complained about slow updates for years, but Windows Phone users felt the same pain when, for instance, Verizon stalled Microsoft’s Windows Phone 8.1 update for five months.
You can escape such nonsense by paying a phone’s full price — to its manufacturer, not to a carrier. The service will cost the same, but you may pay less for the phone: For example, AT&T wants $547 for the Moto X, while Motorola sells it for $300.
Buying direct from the manufacturer also means you can also get a phone your carrier doesn’t offer, such as the upcoming $400 Moto X Pure or the $330 OnePlus 2. (Sorry, Verizon subscribers: The latter phone doesn’t run on VzW’s frequencies.)
Your upgrade timing doesn’t fit your carrier’s
I think that upgrading your phone annually is an indication of misplaced priorities. But if you must do so, paying full price upfront remains a better way to do so.
With a subsidized phone, you’d have to pay full price to upgrade before the last few months of the contract. Early-upgrade deals on unsubsidized phones (such as those you’d get on AT&T’s Next and T-Mobile’s Jump plans) require you to pay over half the phone’s price before an upgrade — 60 percent at AT&T, 50 percent plus a $10 monthly fee at T-Mo.
But if you sell a phone in good condition after a year, you should have little trouble recouping more than half the price. And you won’t have spent a year with a locked device — unavoidable in AT&T and T-Mobile’s installment-payment plans.
What about leasing the phone? Sprint’s lease option has you pay $20 a month for an iPhone 6 that you must turn in for a new one (or pay extra to keep) after two years and $480 in total hardware expenses. No thanks: Two-year-old iPhones sell for well over $170.
The upgrade-anytime options of Sprint’s just-announced “iPhone Forever” and T-Mobile’s “Jump! On Demand” can be better, assuming you simply must have an iPhone now but don’t want to suffer the shame of using last year’s model when the iPhone 6s (or whatever it’s called) debuts next month.
But after you make that upgrade, you’re stuck paying rent — in the best-case scenario, that means $15 a month — on a phone that you can’t resell. If you trade up to an iPhone 6s, you’re stuck paying rent for a year until the inevitable debut of the iPhone 7 resets the cycle of old-phone shame.
You like functioning markets
When phone manufacturers sell through carriers (especially when subsidies distort their prices), your interests come second to those of the telecom companies that buy the phones first. That’s not how we buy most gadgets — though it’s the norm for cable and satellite TV boxes, and look at how awesome those are.
When you buy from the manufacturer, you are the customer that the company has to satisfy. It’s called a functioning market, and Verizon just took a giant step toward creating one in the phone business.