Not to be outdone by T-Mobile’s(s tmus) new smartphone upgrade program Jump, AT&T(s t) is launching its own plans next week that will let customers trade up to new handsets before their contracts are up. Like T-Mob’s Jump, AT&T’s Next program comes at a premium to what you’d normally pay for a device, but Next is much more tailored to the way the average consumer would upgrade their device.
Here are the basics of the program: Instead of signing a 2-year contract and getting a steep discount on the cost of your device, AT&T is introducing financing plans that split a phone or tablet’s full cost over 20 monthly payments. However, at the end of 12 months, you can trade your still-working gadget in for a new device, starting the financing process all over again, and you’re off the hook for your remaining 8 payments. (According to Droid Life, Verizon(s vz)(s vod) is planning a similar upgrade plan for August.)
Unlike Jump, there’s no down payment and there’s no fee to participate in the program. But while Jump lets you upgrade within six months, AT&T makes you wait a full year to trade your old phone in. As I wrote in my financial breakdown of Jump, T-Mobile’s program is ideal for those customers that are constantly switching to the latest and greatest devices, but I doubt most consumers are looking to upgrade so frequently. AT&T, however, has orchestrated Next so that its upgrade cycle coincides with the timeline most device makers use to refresh their flagship handsets.
An upgrade plan that tracks your phone of choice
The iPhone is the perfect example. Apple(s aapl) releases a new version of the iconic handset each year — usually in the fall. With the Next program, an AT&T customer could get a 16GB iPhone 5 by paying $32.50 each month. At the end of 12 months, that customer would have shelled out $390, or 60 percent of the cost of the phone. So long as the device isn’t broken, the customer can trade it in, get the newest version of the iPhone with a new financing program and have all of his remaining payments on the original iPhone 5 forgiven.
In comparison, if you did the same thing on Jump, (which charges you a down payment, regular monthly installments for the device, plus a $10 a month program fee) you would have paid $506 toward the cost of that iPhone 5 after a year, which is only $144 short of the device’s full price tag.
AT&T may have tailored its upgrade plan more smartly, but it doesn’t necessarily mean Next is ultimately a better deal than Jump when you factor in both carriers’ service plans. Basically, AT&T is getting rid of device subsidies for any customer who participates in Next. You either make all of your installments and wind up paying the full cost of the device, or you pay most of that cost and then give AT&T a working device it can then refurb and then resell.
Under its usual pricing, AT&T subsidizes the device with a steep discount up front (say knocking $450 off the cost of an iPhone), but locks you down to a two-year contract. You then gradually pay the cost of your phone through fees factored into your service plan. So if AT&T is making you assume all or most of the cost of your phone, it should lower its rates right? It’s not. It’s charging the same rates as it charges contract customers.
The devil is in the service plan
That’s where T-Mobile has tried to differentiate itself. It’s no longer subsidizing any devices, but it charges far less for service as it’s no longer including device fees in its plans. Let’s put some real numbers to this: AT&T’s cheapest individual smartphone plan with a reasonable data package (450 minutes, unlimited texting and 3 GB of data) is $90 a month. The closest T-Mobile equivalent (with unlimited talk, text and data) is $70 a month. If you factor $20 over 12 months, you wind up with $240 in savings, which more than makes up for the difference in cost between the Jump and Next programs.
I’m not going to sit here and say one plan or program is better than the other because, quite frankly, T-Mobile’s Jump plan is so complex it forces a customer to time his or her upgrade to get the most benefit. AT&T’s Next is simpler to grasp, but you have to keep in mind you’re paying for your phone twice over — a monthly installment plus the subsidy costs built into your service plan. Jump will function as device insurance, but in the case of Next, if you bust your phone, you’re stuck paying the full cost of the device.
Last week on The GigaOM Show, my news editor Tom Krazit raised the point that these upgrade and financing plans may be having the opposite effect than the one they were promoted as having. Instead of bringing transparency to the market, they’re just confusing customers even more.
I agree (and not just because Tom’s my boss). I’m glad that the U.S. mobile industry is trying to give us more options, but the fine print is just making the simple acts of buying a phone and plan almost unmanageable.
New & Improved image courtesy of Shutterstock user B & T Media Group Inc.