Early upgrade plans can work for those who hold on to their phones

Smart consumers know that when a sales pitch involves convoluted math, chances are it’s not a good deal. That alone is a warning sign against early upgrade plans being sold by the four major mobile phone carriers during the past year.

But not so fast.

While many reviews are lukewarm on the value of early upgrade plans for people who prefer the latest handsets, the plans can be a good deal for the opposite people they’re aimed at: customers who hold on to their phones a long time, experts say.

Early upgrade plans are becoming popular as enrollment nationwide more than quadrupled from September through March, according to a report from market research firm NPD.

As if it wasn’t hard enough understanding pricing of cellphone plans, starting a year ago T-Mobile, Verizon, AT&T and Sprint began rolling out early upgrade cellphone plans aimed at gadget lovers who could get their hands on the newest smartphone earlier, annually or even sooner.

Under traditional plans, customers had to wait about two years before they were eligible for a new phone at a discounted price.

And that’s where the convoluted math has always started — with how most U.S. carriers charge their customers. Instead of charging for the phone and service separately, they bake into wireless service plans part of the price of the phones.

That’s why savvy consumers know it’s generally a bad idea to buy and hold a phone for more than two years if you’re on a traditional plan.

You might as well upgrade when you’re eligible. Otherwise, you’ll continue to pay a monthly service rate that includes a phone subsidy for a device that has long been paid off.

In other words, your bill doesn’t go down when the phone is paid for.

That changed with the introduction of early upgrade plans, which essentially separate the cost of the phone — allowing you to pay it off in installments over time, interest free — while reducing your monthly service plan price because you didn’t pay an artificially low price for the phone.

So, ignore the names of the “upgrade” plans but don’t ignore the plans, said Michael Gikas, a smartphone expert with Consumer Reports who has examined the plans.

“The early upgrade plans are a great way to save money if you don’t upgrade. That’s the bottom line,” Gikas said. “Do exactly what they don’t want you to do, and you’ll save.”

Logan Abbott, president of wireless phone comparison site Wirefly, sees it the same way: Upgrade plans are good deals for people who don’t upgrade frequently. “If they’re keeping the phone and like the phone and don’t need to upgrade all the time, that’s when it makes the most sense,” he said.

That’s especially true for customers on no-contract plans such as the AT&T Mobile Share Value plan. “If you’re going with a no-contract plan, I would definitely do it,” Abbott said. “The reason people didn’t use no-contract plans is, they had to buy the phone upfront for, like, $700. The early upgrade plan has kind of eliminated that.”

Are early upgrade plans a smart spending choice for you the next time you’re switching carriers or ready for a new handset? We’re not going to dive into the details of all the major carriers’ offerings. But here are a few key points to consider as you do your own convoluted math.

Smartphones are really good. Major carriers introduced the marketing concept of early upgrade plans at a time when they’re least needed.

“They’re too little, too late,” Gikas said. “There’s less reason to upgrade early than ever before. Early upgrade programs would have been appreciated five years ago.”

That’s because smartphones have matured, and most of them are already very good, with few significant missing features. They have great screens, fast processors, good reception, and decent cameras and battery life. They will satisfy most people for about three years, Gikas said.

Instead of improvement leaps, feature upgrades in phones “are more like baby steps now,” Gikas said. “The most compelling features are already in them. Now, we’re looking at tweaks.”

That makes the phone itself less important. “Phones now are a means to an end. They’ve become commoditized. Now, the action is in content,” Gikas said. “That happens with most electronics. Do you think anyone sweats buying a Blu-ray player anymore? They’re all pretty good.”

The plateau in phone improvements means it’s easier to jump off the upgrade treadmill, keeping your handset for a long time without it feeling obsolete.

Interest-free financing. Most early upgrade plans require you to pay the full retail price of the phone but break it into monthly installments, amounting to 0-percent interest on the full price of a phone. It’s kind of like layaway, but you get the merchandise right away.

For example, the cost of a $650 iPhone 5s might be divided into 24 payments of about $27 per month.

“That alone makes it a good deal,” Gikas said.

Plan price actually decreases. Previously, it didn’t matter whether you bought a discounted phone or paid for it in full upfront, your monthly service bill would have been the same. With early upgrade plans, consumers have at least a little clarity on how much they are paying for the phone and how much for service, Gikas said.

When you’re done paying off the phone, your bill decreases by the amount of your monthly phone installment. But you continue to pay less per month than if you were on a traditional two-year contract plan.

“You’re locked into a good rate with the phone already paid off,” Abbott said.

What if you’re a rapid upgrader? Ironically, early upgrade plans might provide the least value to frequent upgraders, although they offer convenience, experts say.

For example, you’re required to turn in your phone, which is easier than going through the hassle of selling it yourself — a typical move by rapid upgraders, although several websites, including Gazelle, Nextworth and Glyde, make selling old phones relatively easy.

For the rapid upgrader, losing out on that money from selling your late-model phone, often for hundreds of dollars, can wipe out savings from the early upgrade plan. (If you pay off the phone, you keep it.)

“I don’t know if it’s necessarily cost effective if you upgrade every six months,” Abbott said, adding that it might pay if you swap phones every year or 18 months.

Said Gikas: “If you keep upgrading, you’ll be stuck in the same cycle as you were under the old plans, with a fee built in for the phone that you never really pay off.”

“Don’t use their timetable, use your timetable,” he said. “They hate that, but that’s where you get even.”

Bottom line? If you’re a buy-and-hold wireless phone user, it might be worth enduring the convoluted math of early upgrade plans to get the best deal.

Plans to look for

Early-upgrade plans for four major carriers:

T-Mobile: Jump Plan

Verizon Wireless: Edge

AT&T Mobility: Next

Sprint: Easy Pay


More in Herald Business Journal

Exec director of Future of Flight in Mukilteo stepping down

A former board president will temporarily lead Snohomish County’s most popular tourism attraction.

Seafood producer Keyport moves corporate HQ to Edmonds

The family business sees the city as business friendly — and able to accommodate expansion.

Tax bill will help fund 5,000 layoffs, Kimberly-Clark says

Executives declined to say which factories the company would be closing.

Ex-Boeing executive Ray Conner joins Alaska Air board

Alaska Air Group said his appointment affirms the company’s commitment to its Northwest roots.

AI can read! Tech firms race to smarten up thinking machines

“A long way from computers being able to read … general text in the same way that humans can.”

Peoples, HomeStreet banks bump lowest salaries after tax cut

The banks with Snohomish County branches will raise minimum salaries for employees to $15 an hour.

Amazon opens store with no cashiers, lines or registers

The Seattle store allows shoppers to use a smartphone app to pay for items they want.

The expansion at Angel of the Winds Casino is expected to add room for up to 300 more slot machines and 16 new table games. (Courtesy Angel of the Winds)
Groundbreaking held for multimillion-dollar casino expansion

Angel of the Winds will gain up to 300 more slot machines, a 200-seat buffet and more.

Trump hits solar panels, washing machines with tariffs

The administration cast the decisions as part of his pledge to put American companies and jobs first.

Most Read