Subsidized plans are still the cheaper option

April 23, 2014
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If you are looking into buying a new phone, it seems best to continue buying one with a contract attached. Specifically, if you are a customer of AT&T or Verizon Wireless, it is in fact cheaper over the life of a two-year contract when compared to full-price.

As the Wall Street Journal reports:

Under a traditional contract with Verizon Wireless on a plan that includes 2 gigabytes of wireless data, you would pay $200 and an activation fee of $35 for the phone upfront and then $75 a month. Over two years, that comes to about $2,035. On the no contract version, you pay $65 a month for service, with no activation fee, plus about $27 a month over the period to pay off the iPhone, bringing your total to about $2,210 – $175 more.

Verizon advertises that its no-contract plans save money for consumers yet the total price is higher with no-contract than a contract plan. Huh?

As for AT&T:

Customers getting an iPhone on contract will pay $200 up front, plus a $36 activation fee, and then $80 a month for two years for two gigabytes of data, a total of $2,156. When buying an unsubsidized phone, the service fee is $65 a month, with no activation fee, and a device payment of $32.50 for 20 months, although customers can also pay it off over 26 months. That brings the two-year total to $2,210, or $54 more than signing a contract.

Yes, the no-subsidy plans offer faster upgrades and no money down for new phones but they still are going to cost you more over time. As you can see from the image below, you still pay the increased rate even after you technically own the phone. On T-Mobile, this would not be the case. Once you own the phone, it’s yours and you stop making payments on it. Thus, Verizon managed to show the one instance where it would be less expensive. In practically every other instance, Verizon costs more. That’s also assuming the customer doesn’t incur overage charges for going over their 2GB data limit.

AT&T and Verizon have been playing catchup to T-Mobile for some time now and they have therefore changed the language for their early handset upgrade programs.

It is important to keep in mind that cellular executives are on record admitting they jacked up the price of services and data to counter the impact they take from subsidizing devices. They have eliminated the subsidies without actually lowering service rates which means that you are not only paying more for service, you’re effectively paying for your handsets twice.

What plan are you on?

Comments

  • Lisandro O Oocks

    Who ever did the table couldn’t be more wrong.
    4 ppl on Tmobile = $110
    Granted none is sporting new GS5’s

    • TMOTECH

      And they lumped T-Mobile in with the rest in the last paragraph. T-Mobile did lower their rate plans when they stopped subsidies.

    • Craig Trunzo

      Actually, it could be a LOT more wrong. There are 16 prices listed there. you said one is wrong. lat leaves 15 more than can be wrong. You should probably rephrase your comment to “Who ever did that table is 6.25% wrong”

      • Lisandro O Oocks

        Yeah I guess..
        I figured if the piece of data I do know from my experience is wrong, I shouldn’t bother to look at the rest of the table.

  • CSharpner

    I’ve got 5 lines on T-Mobile and pay about $170, one of them is unlimited data, the others are unlimited with a 1GB/mo cap on high speed (slows down after that, but doesn’t stop), unlimited voice and text on all of them. Additionally, I pay $20/mo for my GS4 that has 1 more year to pay off. All the other phones are paid for from prior completed contracts with T-Mobile (2 Samsung Exhibit II’s, 1 GS3, 1 GS2). Oh! And there are no contracts with T-Mobile now, so I can switch anytime I like with no penalties (of course, I’d have to pay the remainder due on my GS4).

  • Concerned Citizen

    Exactly! See what Lisandro said!

    Myself, I am about to slap a $200 Moto G onto the $30 T-Mo plan for about $974 after shipping/taxes/etc for two years of service. I have another phone on Simple Mobile for $50/month with unlimited everything and 3GB of 4G before it slows down. That is still under $2000 if you bring an $800 phone.

    Good article William, but Wall Street doesn’t have a clue what it is talking about.

    • http://www.androidauthority.com/author/wneilsonjr/ William Neilson Jr.

      Good points.

    • Guest123

      I picked up a LG Optimus G Pro from AT&T for $369 and use it on T-Mobile’s $30/month plan. Probably give that device to a family member and pick up the 1+

  • Shark Bait

    Meh, not in the UK!
    If you average out the cost of my nexus 5 over a year, I pay £10.16 a month (with unlimited data) find a network that will beat that wit a phone included.

    If you do your homework you can always get a cheaper deal!

    • alun phillips

      You haven’t factored in the cost of the phone

      • Shark Bait

        Yes I have

        • nilbud

          No genius, you have not. A Nexus 5 is at least £240 which is £20 per month to start with or £10 over two years.

          • Shark Bait

            I sold my nexus 4 for £190 so it really cost me £50. I upgrade each year costing me roughly £50 per year

          • DaveT

            No. It is about $500 up front. That cuts my income by about $5 per year since my bank only pays me about 1% interest.

  • DonSerrot

    Or go with prepayed and actually save money.

    I’m currently using Straight Talk (T-Mobile isn’t available where I live) doing the standard $45 BYOD with my Nexus 5. I got the 32GB one so that’s $400 for the phone, and after taxes my plan comes out to $50 a month. After two years that’s only $1600. If I could get T-Mobile that’d be $1120 after two years with the $30 plan.

    • Andrew

      You forgot to mention the added benefit of giving your former provider the finger over them stealing your money for less than adequate service.

  • Will Wells

    That only works if you’re on a plan with 2 or fewer devices or you have less than 2GB of data per device. The Verizon Edge + More Everything is cheaper if you have 10GB of Data.

    Example 1: 2 lines with 4GB of data.

    Assuming you go GS5, on contract it’s $400 (w/rebates) + $70 Activation, plus $150/month for a 2 year total of $4070. On more + Edge, you get $10 per line with 4GB of data, $50/month in device fees + $130/month for a 2 year total of $4320. You also have to consider that you can upgrade once per year instead of once every 2 years.

    Example 2: 3 lines with 6GB of data on contract vs 10 GB on Edge

    Assuming you go GS5, on contract it’s $600 (w/rebates) + $105 Activation, plus $200/month for a 2 year total of $5505. On more + Edge, you get $25 per line with 10GB of data, $75/month in device fees + $145/month for a 2 year total of $5280. You get more data and you can upgrade once per year instead of once every 2 years.

    It only get’s better from there with the more lines that you add… So, I see their point if you have 3 or more lines

  • Jan Morrida

    Will not disclose my current plan, cause its to good to be true, old grandfather plan is all I’ll say. And its fantastic. Haven’t paid for a smartphone for years now. Get them free everytime. But its a secret. Currently have the sweet LG G2 and really like alot, w/metal case of course.

  • nilbud

    Unlimited calls to mobiles and landlines, 5GB data, €5 free texts for €5 a month. I think I’ll stick to pay as you go with an unbranded unlocked Nexus 5 from Google.

  • Mur

    That’s assuming you’re using a $700 phone.
    Nexus FTW.

  • Benny X

    I think the author took some payola from one of the providers, lol.

    Since when does a contract ever work out in favor for the customer? *never*!

    The reason a contract is never a good idea is that: A. You’re stuck in something you can’t get out of easily (unless you like paying that termination fee). and B. You are forced into a monthly plan. and that is where the provider always comes out ahead.

    I mean, if you enjoy getting contractually ripped off every month, then maybe it’s a good idea…

    • Craig Trunzo

      Unless you bring your own phone, they are ALL contracts. Granted, you don;t HAVE TO spend 2 years on the plan or get hit with a ETF, but if you stop service before the 2 years are up, you still have to pay a huge chunk out of pocket for the phone.

  • Greg C

    it makes no sense to purchase a phone from a carrier, ever. whenever you can purchase a phone for around $300 and use it on any carrier in any country at any time, that’s the “cheaper option”.

    carriers are for purchasing mobile phone service, not the mobile phone.

  • Kash Gummaraju

    This article ignores buying phones off contract not from the carriers. Such as a nexus or newer off contract only phones such as OnePlus One. The subsidized plans are actually more expensive because they also lump the other 400 dollars into the monthly bills for the 2 years. Most carriers offer discounts for those who bring in their own device.

  • RH

    Buying off contract was WAY cheaper for me.
    Over 2 years ago, bought a Galaxy Note (International version) on Amazon, for 574(USD). Using straight talk, at&t sim card, 2gb data, unlimited phone/text @ 49 bucks a month, x 24 months (typical USA contract) = 1176 + 574 = 1750.
    Now, I was paying over 130 bucks on at&t per month x 24 months = 3120 + say 299 “subsidized” Note at the time = 3419 for the life of the contract. 3419 – 1750 = 1669 or saving just over 139 per month!

  • angle

    I pay $96( with tax) for two lines in t mobile. This comparison is stupid.

  • Fievel

    Talk to people on Ting and Republic Wireless about which option is cheaper.

  • Fred Chiang

    woah woah woah freaking stupid verizon tmobile is not fking $65 for 2gb of data

  • asd

    I disagree if i bought the galaxy note 3 from ebay for £385 and use my £10 per month sim card its way cheaper than paying £30 for 2 years

  • Mark Lynch

    Here in the UK you can buy a phone unlocked at a reasonable price and then get a cheap sim card only deal which works out a lot cheaper. I have a sim only deal with Virgin UK that gives me 2000 any network minutes, unlimited calls to landline phones, unlimited same network calls, unlimited texts and unlimited data all for £11.99 a month or $20 in American money.

    Total bargain!

  • Luka Mlinar

    I got one gigabyte of trafic and more minutes than i can spend for 7,27$. Here’s my advice peeps:
    -Don’t do contract’s. You always end up paying more than the phone is worth.
    -Pay only for the services you need.
    -Every 6 months check the prices of all operators and pick the cheapest one.

  • Perry Kahai, Ph.D.

    William, a major problem with your approach! If today someone pays $65 a month for service, then they really need a lesson in Economics! Further, the AT&T difference of $54 is insignificant! Yours is the first article I have read in sometime that touts the benefit of a contract! Buy a phone outright and then carriers can’t tell you what to do!

  • So_

    55$ for my Tracfone smartphone running on Veryzon network, a service card who will be tripled and good for 3 months and 6$/month after to keep the service running without adding service. For a light user, it’s the best.

  • Iskandar

    I am on Cricket. $45 a month with Galaxy S4 which was purchased for $350…. $576 for 12 months + 350 for the phone

  • John Garlits

    Ha! Good joke. Now write a real article with research not based only on the WSJ.

  • Dion Creighton

    T Mobile all the way. Screw ATT and Verizon with their false advertisement!

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