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?


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