Why AT&T's new pricing plans are only a bargain for some

In this edition of Ask Maggie, CNET's Marguerite Reardon deciphers AT&T's new pricing plans and explains who will save money under these plans and who won't.

AT&T's newly revised service plans may sound like a good deal, but a closer read of the fine print reveals hidden price hikes on its most popular data plans.

AT&T announced a new pricing structure Thursday that the company claimed in its press release will "make it even easier for customers to share data and save money" on AT&T's network. Blogs and articles all over the Internet have been touting AT&T's newly revised Mobile Share Value pricing structure as a big improvement and a great value for consumers.

But a closer look at the tweaked service plans shows that for most consumers, these new plans are unlikely to save them money. And in some cases, it may even cost them more cash than what they would have paid under the company's old plans. Still, AT&T's new pricing structure can offer savings for customers willing to hold onto their smartphones a bit longer and for those on either the low-end or the high-end of data usage.

In order to better understand AT&T's revamped, complicated pricing structure and to figure out under which circumstances you can save money with these new plans, I put together this FAQ for my Ask Maggie readers.

I'm confused about what AT&T offers in terms of service plans. Am I still able to get a smartphone with a subsidy or do I have to pay full price for a new device?

AT&T still offers its traditional contract service plan, which allows you to purchase a new phone when your contract is up for renewal at a subsidized cost. In exchange, you have to agree to stick with AT&T for another two years.

The company's new no-contract Mobile Share Value plans simply offer customers another pricing option that reduces their monthly expenditure by separating the cost of the device from the monthly service plan. If customers don't take a subsidized smartphone, the cost of the monthly service is reduced by $15. But when the price of a smartphone is factored into the total cost of ownership, the savings start to disappear, as I'll explain a little later in this FAQ. This new option essentially offers an incentive to customers, who seek out low-cost smartphones or who keep their existing phones long after they've been fully paid for.

In a nutshell, AT&T will offer three options, which are each based around the company's Mobile Share Value plans that allow multiple subscribers to share data, text messaging and voice service.

  • Contract plans: These are AT&T's traditional service plans, which require customers to commit to a two-year contract in exchange for buying a device at a subsidized price. So instead of paying $600 or $700 for a smartphone, a consumer can get the phone for $200, so long as they agree to pay AT&T a monthly service fee for two years. If a customer decides to leave AT&T before the two year contract is up, he has to pay a hefty early termination fee.

  • No-contract plans: These plans are brand new. Customers signing up for this plan will get a discount on their monthly service if they buy their own device or already own one they can use on AT&T's network. In other words, consumers can either buy a device at full price from AT&T or another retailer or bring an unlocked or AT&T-ready device to AT&T. In exchange, these customers will not be forced to sign a contract with AT&T, which means there is no early termination fee if they decide to leave AT&T's service. These customers will also get a discount on their service. The discount on the service is really the big change here, since consumers were always able to bring their own devices to AT&T.
  • Installment payment plan: This is the AT&T Next plan, which allows consumers to upgrade their devices more frequently while also avoiding a two-year contract. But because customers are still technically paying full price for their devices, they have to tack on an additional charge for the device. Unlike the contract plan, AT&T Next doesn't require a contract and customers don't have to put any money down upfront. But it means that in addition to the cost of the service, which is based upon how much data you want, and the $40 cost to connect the device to the service, customers also have to pay an additional monthly charge for the device. As part of this program, customers who pay additionally for their devices get to upgrade every 12 months or every 18 months, depending on how much extra they pay each month for their devices.

So what has AT&T actually changed in terms of its plans?
It has added $15 a month discount per smartphone on its monthly service fee for customers who don't sign up for a contract and don't take a device subsidy. It's also added another option for customers who sign up for the AT&T Next program, which allows customers to pay off their phones in monthly installments. And finally, AT&T has also tweaked its pricing for its smartphone Mobile Share plans.

First explain how the AT&T Next plan has changed?
When AT&T first started offering the Next program, the additional device fee was calculated over 20 months. For example, a phone that costs $700 at full price, would require a $35 monthly payment on top of the monthly service fee, which also includes the device connection fee. Customers who signed up for this service would be able to upgrade to a new device, again with no money down, every 12 months.

AT&T is now allowing customers to calculate their monthly device payments over 26 months, which reduces their monthly bill. For example, the monthly price for a $700 device will drop to around $27 instead of $35. But there is a catch. Instead of being able to upgrade every 12 months, now customers signing up for the 26-payment financing option will only be able to upgrade every 18 months instead of every 12 months.

Because the AT&T Next program is for customers who do not have a contract, customers who sign up for this program will be able to connect their smartphones to the Mobile Share plans for $25 per smartphone per month. Depending on which Mobile Share data plan customers sign up for, they could save $15 or more per month on this plan compared to what they'd pay under AT&T's former pricing structure.

Will AT&T still offer the 12-month upgrade option as part of the AT&T Next plan?
Yes, the new 18-month upgrade option is being offered in addition to the 12-month upgrade option.

AT&T's Mobile Share plans old and new. Chart by Roger Cheng/CNET

How has AT&T changed its traditional Mobile Share contract plans?
Pricing for the Mobile Share plans has also been tweaked for customers on and off contracts. AT&T has changed pricing on its different tiers of data service. For example, instead of charging $90 a month for 6GB of data per month, the company now charges $80 a month for that tier of service.

It's also simplified how much it charges customers to add smartphones to the service plan. Previously, it charged different fees to connect smartphones, depending on which tier of data you bought. For instance, the smartphone connection fee was $50 with a 300MB data plan, which cost $20 a month. But the device connection fee dropped to $30 per smartphone when you signed up for the 10GB data, plan which cost $120 a month.

Now AT&T has simplified the pricing structure, charging a flat $40 a month to connect a smartphone to a data plan regardless of whether that data plan is for 300MB of data or 50GB of data.

Will the new pricing structure save me money?
It depends. AT&T seems to have structured the new pricing in such a way that most individuals will pay about the same as they did under the old pricing plan. The only people who could save money are customers who either use a small amount of data each month or who a very large amount of data each month.

For example, an individual who only needs 300MB of data per month will save $10 a month on service as compared with the older plans. Individuals who need 1GB, 2GB or 4GB of data, which tend to be the most popular tiers of service for individuals, will pay the same amount as they would have paid under the old pricing system.

Where individuals start saving money again is when they subscribe to a 6GB data package or more.

What about families who are sharing buckets of data? Will they save any money under the new pricing structure?

Again, it depends. The situation gets tricky when you start adding multiple people to the same Mobile Share plan. And this is where AT&T has gotten sneaky with its pricing.

Even though AT&T has lowered the price of some of its data tiers, which makes it look like people will save money, the company has actually raised the price to add additional smartphones to a plan for customers in the higher data tiers. So instead of paying $30 per smartphone, they now pay $40 per smartphone.

Take a family of four as an example. They have four smartphones that share a single data plan. Sharing 2GB of data between four people, which gives each individual about 500MB of data per month, a family of four can save $15 a month under the new plan. At 4GB, the price of the service is exactly the same under the new pricing structure as it was under AT&T's old pricing regime.

But once families start sharing 6GB, 10GB or 15GB of data among four smartphones, the total cost for the service is $10 more a month than it was under the old pricing structure.

How is this possible if the data prices on these tiers are actually lower under the new plans than they were under the old plans?
As I mentioned above, using its previous pricing structure, AT&T gave customers buying bigger buckets of data a break when adding additional smartphones to the plan. Now that financial incentive has been removed, as every tier of data service charges the same $40 flat rate to add more smartphones to the service.

So even though AT&T has reduced the price of its higher capacity data tiers, it has increased the price of adding additional smartphones to the plan by $10 a month per device, which makes its most popular data tiers more expensive for families than it had been previously.

Customers don't start to see savings under the new pricing structure as compared to the old structure until they start buying 20GB worth of data or more each month.

That stinks. Will I at least be able to save money with AT&T's new no-contract plan?
Again, that depends. Even though AT&T is touting its new no-contract option as a great value, if you need to buy a new phone, you will still spend less money over a two-year period by signing a contract with AT&T and paying the subsidized price for your new smartphone than if you bought a new device at full price and paid the new no-contract service fee.

Let's use the 16GB version of iPhone 5S as an example, which costs $200 with a two-year contract and $650 without a contract. And let's say you want the new 2GB data package, which is $55 a month.

  • No contract: Without a contract, you'll pay $650 for the device upfront. And if you subscribe to 2GB of data, you'll pay $55 a month for the data and $25 a month for the phone for a total of $80 a month for service. Multiply this by 24 and you will pay $1920 over two years for AT&T service. Add in the cost of the device, and the total cost of ownership for two years is $2520.

  • Contract: If you take the phone subsidy and opt for a two-year contract, you will pay $200 for the device. And your monthly service will cost $55 for 2GB of data plus $40 to connect your smartphone for a total of $95 per month. Over 24 months the service fee plus the $200 charge for the device will total $2360.

  • AT&T Next: If you sign up for the 18-month trade-in option, tack on an additional $25 a month to the no-contract plan, over two-years, you will pay $2520. The 12-month upgrade option will cost you an additional $32.50 per month, which over two years on top of the no-contract fee will total $2700. This is assuming you upgrade your devices every 12 or 18 months as permitted by the plan.

If you compare the total cost of ownership of each of these options, you can see the contract plans still end up costing you about $160 less when you consider the cost of paying the monthly service and buying a new smartphone at full price.

Motorola's bargain phone: The Moto G is priced at only $179 without a contract.

If the no-contract plan costs more than the contract plan over two years, and I still need to come up with the full cost of my smartphone, why would I want to sign up for this service?
This is a great question. The biggest benefit of the no-contract plan is that you don't have a contract. This means that you can cancel AT&T's service whenever you want and you won't have to pay an early termination fee.

This plan is also great for people who keep their devices for longer than two years or who can buy a new device at a cheap price. In fact, this is the only instance in which you can save money under AT&T's no-contract plan when compared to its contract plan.

Under the previous pricing policy, people who were given hand-me-down phones or who held onto their existing phones beyond two years paid the same price for their service as people who upgraded devices via AT&T's traditional contract plan every two years. In other words, the monthly service cost the same regardless of whether you had paid for your phone or not.

Now, AT&T will offer an option in which the price of the device is separate from the price of the service. And this will give customers an incentive to keep smartphones longer, as well as hunt for more competitively priced devices.

For example, customers who buy a less expensive unlocked phone, such as the new Moto G, which starts at only $179, or a used smartphone, can save money over those who buy a new phone at a subsidized price from AT&T.

The bottom line:
As you can see from this analysis, AT&T's new pricing structure for its Mobile Share plans are by no means simple or easy to understand. And whether these plans offer consumers savings over AT&T's former Mobile Share plans really depends on the customers' circumstances. Individuals who don't need to buy a new smartphone or who can buy one cheaply, along with those who either use a very small amount of data or use a very large amount of data each month, will find savings in the new pricing structure.

But for the vast majority of customers, who desire more expensive new smartphones and who share an average amount of data with other smartphone users, AT&T's new pricing structure and no-contract plans may actually cost them more than the old plans.

One thing to keep in mind is that existing AT&T customers don't have to switch to the new Mobile Share Value plans. They can keep their old plans, and if they want to switch they can. But if you're a new AT&T customer, the revised pricing is all that's available to you.

Ask Maggie is an advice column that answers readers' wireless and broadband questions. The column now appears twice a week on CNET offering readers a double dosage of Ask Maggie's advice. If you have a question, I'd love to hear from you. Please send me an e-mail at maggie dot reardon at cbs dot com. And please put "Ask Maggie" in the subject header. You can also follow me on Facebook on my Ask Maggie page.

Correction 8:08 a.m. PT: A previous version of this story incorrectly calculated the cost of the AT&T service plans. The story has been updated to reflect the correct pricing.

 

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