Warning: This story is not going to beat around the bush. If you're in love with mobile carriers and the tactics they use to take advantage of customers, you may want to stop reading now.
Still with me? Good. Because there's something important we need to discuss.
It's about these new carrier "early upgrade" programs -- specifically, those introduced by AT&T and Verizon this week. AT&T's version, called Next, came out a couple days ago. Verizon followed suit today with a similar (and somewhat confusingly named) offering called Edge.
The programs have a few things in common: First, they're pretty obvious responses to T-Mobile's recent contract-free shake-up. Second, they practically require you to hire a team of professional accountants in order to understand them. And third, they're basically designed to rip you off.
Take Verizon's Edge program. The plan promises to provide an "affordable way to upgrade to the newest device and satisfy your love of technology." Sounds great, right?
Here's the deal, though: You buy a new phone at full retail price -- not subsidized, as is typically the case with a traditional carrier contract. That means you'll probably pay somewhere around $600 to $800, depending on the device.
You don't pay all of that up front; instead, Verizon spreads the cost of the phone over 24 months and adds it onto your regular monthly bill. Then, if you want a new phone, you can get one anytime after six months. All you have to do is -- and I quote -- "pay off 50 percent of the full retail price of the phone and you can choose a new phone and start all over again."
AT&T's Next program is even more befuddling. With that setup, you also pay the full unsubsidized price of a phone, spread out here over 20 months and added onto your regular monthly bill. You can stop making payments after 12 months and get a new phone if you agree to trade in your old one and start a new two-year "don't call it a contract" commitment. Or you can go for the full 20 months, keep the phone and then start again whenever you wish. And of course, you can always cancel early -- if you pay the "don't call it an early termination fee" full remaining balance on your device.
Whew -- got all that? Me neither. And neither will 99 percent of the customers who walk into a carrier store and get convinced to sign up for one of these options. That's why they'll think they're getting a good deal.
But amidst all the complex math, here's what AT&T and Verizon are neglecting to mention: Carriers charge such high monthly rates for service because they typically subsidize the cost of the phones they give you up front. You pay 200 bucks for a brand new Galaxy S4 -- a phone that'd cost around $650 if you bought it outright -- and then you pay an inflated monthly fee for a minimum of two years in order to make up for those initial "savings" (and then some).
With these new early upgrade plans, AT&T and Verizon are charging you the full unsubsidized price for your phone -- and then still charging you the inflated monthly service rate designed to make up for the subsidy you aren't getting. In other words, you're paying for your phone twice. In other words, you're getting seriously ripped off.
T-Mobile's new Simple Choice plans -- the ones that presumably inspired these moves -- are a different story. With those plans, you're also paying the full unsubsidized price of a phone, spread out over two years. But the monthly service charges are significantly lower, as T-Mobile doesn't do traditional contracts and no longer inflates its monthly fees in order to recoup subsidies.
Just look at the numbers: At T-Mobile, you'd pay $70 a month for unlimited talk, text, and 4G data. AT&T and Verizon no longer offer unlimited data options, but if you were to get unlimited talk, text, and just 4GB of 4G data, it'd run you a whopping $110 a month at both carriers. If you want more data than that, the rates climb even higher.
In terms of early upgrades, T-Mobile's program for that -- called Jump -- adds an extra $10 a month onto your bill and lets you swap out phones every six months by making a down payment -- usually $100 to $150 -- on the new device. Still not a perfect situation, of course, but with the lower monthly fees, it's a little less ridiculous.
An interesting contrast is the often untapped world of prepaid, where for many folks, the best value resides. For instance, I bought a Nexus 4 unlocked and off-contract directly from Google for $350. I use it with a $30/mo. prepaid plan that gives me 100 minutes, unlimited text, and unlimited data with the first 5GB at 4G HSPA+ speeds. That shallow pool of minutes won't work for everyone (though you'd be surprised how easy it is to stretch it out), but there are plenty of other prepaid options that offer more minutes while still keeping the monthly rate at $50 or less.
In the end, you'll have to figure out what setup best suits your needs. Don't let yourself be misled by Verizon's and AT&T's new early upgrade offerings, though. They're a confusing and convoluted mess -- and they most certainly are not designed to be good for you.