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For iPhone 5, it may be cheaper to jump carriers than upgrade

Not due for an upgrade but still want the latest iPhone at a discounted price? It may make sense to leave your carrier despite a termination fee.

Danny Sullivan
Danny Sullivan is a journalist who has covered the search and internet marketing space for over 15 years. He's founding editor of Search Engine Land and Marketing Land, and writes a personal blog called Daggle (and maintains his disclosures page there).
Danny Sullivan
7 min read

Note: I wrote this article before pre-ordering kicked in, and I got an entirely new story when I called AT&T today around 9:30 a.m. PT. I was told I could do an early upgrade on my iPhone 4S for an extra $250 fee on top of the two-year contract price, so that a base model 16GB version would be $450 total.

I was transferred from the initial customer service rep who told me this to an "upgrade specialist" after over an hour wait (so be forewarned, if you try today). At first, she couldn't process the upgrade, but then she found a "manager override" made it happen. Along the way, I was also once told the two-year price would be $150, rather than $200. But in the end, it was $450 total.

As I explain further below, be sure to ask your carrier if you're told you can't upgrade at a discount. The situation may change if you're looking to leave.

Last year, I found it crazy. It made more sense for me to leave my carrier, eat the termination fee, and buy a new iPhone with another carrier than stay.

A year later, that wacky world remains true on iPhone 5 pre-order day.

Stay for $650....
Consider my current situation with AT&T. I purchased the iPhone 4S last year when it came out, so I'm not eligible for an upgrade. I can't even do an "exception upgrade," where AT&T will let you upgrade early by adding $250 on top of the two-year contract price for a phone. There are no exception upgrades for the iPhone, I was told by AT&T, when I called yesterday.

Instead, if I want the basic 16GB iPhone 5, I have to pay the full $650 list price, rather than the $200 discounted price for those who sign a two-year contract. That's a $450 difference.

Or save $225 by leaving?
This is where jumping ship to Verizon makes sense. If I go over to Verizon as a new customer, I'll pay the $200 discounted price. I'll also have to pay my AT&T termination fee. That started at $325, then was reduced by $10 for each month I had the phone. It's now $225. Adding that to what I'd pay Verizon means the total price of my iPhone 5 would be $425. That's $225 cheaper than staying with AT&T and paying full price.

Plus trade-in value!
Sure, there's also the Verizon activation fee I'll also pay of $35. Even including that, I'm still ahead. I'm even further ahead if I use Verizon's trade-in service. Currently, it's offering $230 for the base model of the iPhone 4S from AT&T. Yes, Verizon will accept AT&T phones.

If I do that, I've pretty much offset that AT&T termination fee. I've got my nice shiny new iPhone 5 at a low price. All I had to do was abandon AT&T.

Termination fees not so scary
That's the crazy part. The idea behind a termination fee is to help ensure that the carrier recovers the discount it gave on the phone at purchase. The fee is supposed to deter customers from leaving. But with the iPhone, the policy against early upgrade discounts works against this.

What I've described above also works for Verizon customers considering jumping ship. If you got an iPhone 4S last year, Verizon tells me there's no discounted pricing. Instead, you'll have to pay the full $650 for a base model iPhone 5.

Alternatively, you can leave to AT&T and pay only $200 with a new two-year contract. Your Verizon termination fee that started at $350 when you got your iPhone 4S would have reduced $10 per month similar to how it works with AT&T, making it now $250. Add that into the costs, and your new iPhone 5 will total $450 -- $200 less than staying with Verizon.

Next, sell your old phone through the Amazon trade-in store (currently worth up to a $370 gift card value) or any number of other outlets like Glyde (worth up to $280 currently) or Gazelle (worth up to $274 currently), and you'll save even more.

Jumping to and from Sprint may also work as I've described with AT&T and Verizon. I just haven't explored that. But if you're with Sprint, or are thinking of going to the network, it's pretty easy to do the math as I've described above.

Things to consider
Of course, switching does come with the hazard that you might lose some old unlimited data plan you have or some other option that's no longer offered. You have to consider this.

Whether you'll like your new network is also important to think carefully about. If you're happy with coverage that one carrier provides, you might want to stick with it. If a carrier has terrible coverage in your area, moving to it may make no sense. If you really need to do data and talk at the same time, going to the iPhone 5 with Verizon or Sprint will be an issue. But if you're in an all-things-being-equal situation, jumping ship may make sense.

Can't move? Ask for credit
If you can't jump, or don't want the (relatively small) hassle of moving, here's another tip. At least threaten to move. It's amazing what happens after you get passed from the regular customer service rep to a customer retention person. If you're really going ahead with canceling, suddenly new options may appear.

For example, while the carrier might not be able to drop the price of your phone purchase, you might find yourself offered credit on your service. That's what happened with me and AT&T last year. When I went to cancel my line, because it was cheaper to move and buy a new phone with Verizon, I was given credit on my bill for the difference. I paid more for the iPhone, but I got back about three months of free service.

Upgrade fanatic? Consider Google Voice
Another tip for those who really like to get the latest phone. Consider porting your mobile phone number to something like Google Voice.

I'm a longtime Google Voice user, and I ported my number back in 2011. People call me on my Google Voice number, and I call out on my Google Voice number. The "real" number of my phone is never shown. In fact, I often don't even remember it, since I never give it out.

The advantage to this is that if you like a particular carrier, you can add a new line of service to your account and get the discounted rate on the phone you purchase. Then cancel the other line. You're still taking a termination fee hit, just as you would if you swapped carriers, but you're saving overall.

That keeps you with your carrier, but what about all the people who try to call on your old number, when you cancel that line. If you're using Google Voice, that's not an issue. You just configure your new phone to use your Google Voice number. No one needs to learn a new number; life goes on just as before.

Would this really work? We'll see. That's exactly what I'll be doing with AT&T. When I explained I wanted to add a new iPhone 5 and line to my account and cancel my iPhone 4S line, the rep I spoke with didn't have a problem with that. As long as I was happy to pay a termination fee, I was I was good to go. I also know I can point my Google Voice number to any line I have with AT&T or Verizon and have it work. I've done that plenty of times before.

Keep in mind, if you go this route, that Google Voice can make life more complicated in other ways. With the iPhone, you have to use a special app rather than the regular dialer. It's not hard, and for some, it'll be worth the extra step. For Windows Phone users, the lack of an official Google Voice app remains a major barrier.

Happy upgrading -- or not upgrading!
Of course, plenty of people may not want to upgrade to the new iPhone 5, and that's fine. I wrote a short review based on my hands-on time with it at the Apple event this week, explaining why -- for me -- it's worth doing the early upgrade. I want 4G LTE speed plus the built-in GPS combined with iOS, which lately I'm preferring over Android (especially because of Android's poor email client).

Others may be perfectly happy staying with earlier versions of the iPhone. Plenty more are happy not going the Apple route at all. That's fine. There is no wrong phone. The only thing wrong is a strange world where it can be cheaper to leave your carrier for an upgrade than to stay.

Why you should wait to buy the iPhone 5
Watch this: Why you should wait to buy the iPhone 5