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Carriers Slowly Eliminating Cell Phone Subsidies

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Cell Phone Subsidies Being Phased Out?

Thanks to T-mobile there is a new trend in the industry as carriers are beginning to move away from the age old sign up for a 2 year contract and get your phone subsidized model.  The idea of no more contracts sounds great on paper for the customer, however upon further examination we're going to find out that things aren't always as they seem.

You see, for some customers this new model can offer a much greater benefit to the carrier than it does to them.  I'm going to use AT&T as a primary example to show you the pro's and cons of their new unsubsidized phone upgrade model referred to as "Next", but first let's take a look at the industry as a whole.  Back in December of 2012 T-mobile announced that they were putting an end to subsidies and contract cell phone plans.  Roughly 6 months later AT&T and Verizon started offering unsubsidized phones as well as part of their "Next" and "Edge" plans respectively, while still offering phones on contract.  A few months later Sprint joined in the fray with it's "One Up" program which has since been replaced by "Easy Pay."  Like Verizon and AT&T Sprint is still offering phones on contract, however this may soon change.  Late last year AT&T's CEO exclaimed that the industry needs to push forward with an ecosystem devoid of subsidies for high end smart phones and there is speculation out there that this could happen by 2015.  The reason for all of this is to allow the carriers to make more money, and increase profits by not having to subsidize your mobile phone.  The question now becomes will this savings be passed on to the end user?  The answer is it depends, and  when it does the amount saved is marginal.  Time to take a deeper look at this using AT&T's "Next" model.    Since AT&T offers two installment plans using Next, one that allows an early upgrade after 12 months, and one after 18 months, and both of these plans require you to pay off your mobile phone for different amounts of time (either 20 or 26 months), we're going to compare these models vs your standard contract model and see how much money you can save by buying a smart phone off contract for a single line.  In this example we will use the current pricing of the Samsung Galaxy S5 ($650) and assume you choose the 2 GB data allotment.

Comparison of Subsidized vs Unsubsidized Cell Phone Plans For a Single Line with AT&T Next

Single Line12 months next18 month nextcontractno contract
Monthly installment cost or upfront cost$32.50 x 20 months$25 X 26 months$199.00$650.00
monthly bill$65.00$65.00$80 first 24 months (duration of contract) then $65$65.00
Total Cost 26 months2340234022492340
Hmmm.  It doesn't seem like you are going to save any money by purchasing a smartphone off contract.  So what is AT&T doing by switching to "no contract" models?  Pocketing the profits at your expense!  No savings is passed onto you the customer if you're on a single line!  Maybe you should consider an AT&T MVNO here such as Net10 or Consumer Cellular if you really want to save and buy the latest phones whenever you want anyway!  Now let's see what happens when we look at Mobile Share family plans with a 10 GB shared data allotment.

Comparison of Subsidized vs Unsubsidized Cell Phone Plans For Mobile Share Lines with AT&T Next

3 Lines on Mobile Share Plan12 months next18 month nextcontractno contract
Monthly installment cost or upfront cost$32.50 x 20 months x 3 lines$25/line X 3 lines x 26 months$599.97$1,949.97
monthly service charge$145.00$145.00$220 x 24 mo then $145$145.00
Total Cost 26 months572057206169.975719.97
Hmmm.  Now the story is different.  It seems AT&T plays favorites with families.  By this analysis, if you're on a family plan it is cheaper by a factor of $17.30 a month or about $5.77 per person to get an "off contract" cell phone plan with an unsubsidized phone or through the "Next" program.  Kudo's to AT&T for at least offering some savings to it's customers here.  I have a feeling you'll still be saving some more money if you were to switch to an AT&T based MVNO instead.  I also have a feeling you'll see this sort of behavior from other carriers as well. Stay tuned for a future post or a new page covering this topic.

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