Apples-to-Apples: Comparing the New Cell Phone Plans

Mrs. Mindcrime and I are reaching the end of our cell phone contracts.  My Droid Razr MAXX is running frustratingly slowly and I’ve started shopping around for what my next phone will be.  We pay for three phones on our account – I pay for my Parents non-smart phone.  I figure that they fed me for 18 years, so it’s the least I can do.  However, even they have started hinting that they want one of those new-fancy-pants phones that they see everyone else has.  (Again, not a problem – health insurance for children is expensive and they kept me covered into my 20s…).

When I started looking around there seems to be a new set of pricing schemes that are “contract free” and would allow me to upgrade now instead of waiting out the final two months with my pokey phone.  Examples of these new schemes would be Verizon’s Edge plan and AT+T’s no-contract option.  T- Mobile also has similar schemes, but their coverage is not very good where I live so I instead focused upon the two larger carriers.

What these new plans do (for the most part) is separate the cost of the phone from the cost of the contract.  So to do an apples-to-apples comparison I went to the local stores and got bids on contracts for 3 Phones.  For the purposes of my study I used the Apple iPhone 5s as the phone all three of us would get because it is available on all carriers.  It is also expensive enough to demonstrate the full amount of subsidization that exists on a 2-year contract.  I won’t actually be getting an iPhone – or any Apple device, ever.  So I also chose to ignore the fact that while Apple phones are eligible for the 2-year contract pricing or the 2-year installment plan, they will not let you buy the phone outright.

Let’s look at how I calculated the costs of the phone into my analysis:

iPhone 5s is a $650 phone, which you can get for $199 on 2-year contract OR pay an installment plan of $27.08/mo. (Verizon calculates the cost at $27.15/mo for 23.9 mos and AT+T charges $32.50 for 20 mos…both add up to $650.) Since the phone cost is net-net over 24months I simply calculated it at $27.08/mo in both scenarios to get an apples-to-apples comparison.  (Pun woefully intended.)

We are not heavy data users and I don’t think my dad is going to be downloading movies…so I used 4GB as my data pool in all cases.  I also added in $13/mo in taxes and fees across all plans.

There is one big caveat here.  Both AT+T and Verizon decrease their line access fees by $10 per device when you step up to a 10GB data plan, which is $30 more expensive than a 4GB plan.  If you have 2 phones/devices this is not enough to justify the cost, at 3 devices (me) it is free data, at 4+ devices it is cheaper to get a plan with 10GB of data instead of my frugal 4GB.

Here is my final analysis in a chart:

AT+T – 2 Year AT+T No Contract Verizon 2-year Verizon Edge
3 phones  $600.00  $1,950.00  $600.00  $1,950.00
Monthly  $203.00  $158.00  $  206.00  $176.00
2 Year Total  $5,472.00  $5,742.00  $5,544.00  $6,174.00
Actual Monthly  $  228.00  $  239.25  $  231.00  $  257.25

And here are my general conclusions:

  1. Over two years or on a monthly basis the 2-year contract plans are cheaper.  Which makes some sense since there is less ‘risk’ to the carrier.  They know that they have you for the next two years.
  2. If you are data hungry and have three or more devices on your plan, then the new plans might be a good deal.
  3. The premium for being able to “upgrade your phone early” (beyond the cost of the new phone) is about $11.25/month on AT+T and about $26.25 on Verizon.
  4. Verizon’s Edge plan does not fully discount the cost of the phone subsidy from their ‘no-contract-ish’ Edge Plan. Also, I discovered in the store that they only discount the access fee for the duration of time that you are making payments on the phone.  (The financing does not include a fee nor interest, but that is an important detail if you are like me and pay off debts early to eliminate monthly bills.)
  5. The cost of the flexibility given to the consumer with these new plans is about $260 over two years on AT+T or $630 on Verizon.

Final answer:  For most middle-class people (especially us DINKs) the differences between these plans are barely worth the time that you spend crunching the numbers or for that matter reading this blog.  So go do whatever the heck you want and get on with your day.

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