The new iPhone 6 and iPhone 6 Plus were announced this week, and Apple fanboys and fangirls are trying to figure out how to get their hands on these new devices.
But deciphering upgrade programs and figuring out what's the most economical way to get the new iPhone 6 or the iPhone 6 Plus given all the changes in wireless service plans in the past several months is tricky to say the least.
In this edition of Ask Maggie, I help one reader figure out if he should go back to a two-year contract when getting a new iPhone 6 or if he should buy it full price. I also help another reader who wants to keep his unlimited data plan on AT&T figure out his options for buying the new iPhone 6 Plus.
Should I avoid a carrier contract?
I have a bring-your-own smartphone plan with AT&T where I get a discount right now because I'm not on contract. I have had my phone for a while. so it's been fully paid off. My question is, should I buy the unlocked version of the iPhone 6 at full price or should I go on-contract and pay more per month at this point? I'm not sure if choosing one way or the other will save me money or offer some other benefits.
This is a terrific question. If you do the math, the total cost of ownership for most consumers is almost the same over a two-year period whether you decide to pay for the phone upfront, finance it on the AT&T Next plan or sign up for a two-year contract. The only big cost difference comes into play if you are subscribed to a 10GB data plan or more. If that's the case, the total cost of ownership of the new iPhone 6 falls by nearly $200 on the financed Next plan as compared to a contract plan. This means that if you're buying iPhone 6 for the family, you should probably consider the Next plan over signing contracts for each family member.
Before we get into the numbers, let me explain how AT&T's plans work. The Next plan is a financed early upgrade plan that allows AT&T subscribers to upgrade to a new device after 18 months or 12 months. Customers can also choose to keep their phones instead of upgrading. Buying a device through the Next program doesn't require a down-payment. Instead, AT&T breaks up the payment over 24 months or 20 months. The Next 18 plan chops the payments into 24 payments and subscribers can upgrade to a new device, if they trade-in their old device, after 18 months. The Next 12 plan breaks the payments up over 20 months, and subscribers who choose to trade in their devices for a new one can do so after only 12 months. There is also no activation fee or upgrade fee associated with the Next program.
On the contract plan, customers sign a two-year contract. They must pay $199 when they get the phone, but there is no monthly fee for the device. If they quit the service before the two years on their contract ends, they owe an early termination fee.
Regardless of whether they are signed up to a contract plan or a device finance plan, customers must also sign up for services, including a data plan. AT&T offers unlimited text and voice service and then customers pay for data in increasing increments. AT&T charges customers to connect certain devices to these plans. Under a contract plan, AT&T charges $40 a month to connect a smartphone to the data plan. Under the Next plan, AT&T charges two different rates. For customers subscribed to a data plan with 6GB or less of data, it charges $25 a month to connect a smartphone. Customers on a 10GB or higher plan will be charged $15 a month to connect a device.
To figure out how much it would cost to buy a new iPhone 6 under either an AT&T contract or the AT&T Next 18 plan, take a look at the chart below.
As you can see from the chart, for people subscribed to less than 10GB of data per month, there isn't much of a cost difference over two years. The difference is greater for customers that are on a plan with 10GB or higher. In this case, it makes more sense to buy the iPhone 6 as part of the Next 18 than to subscribe to a contract. Otherwise, it really comes down to how much you want to pay monthly. Unless you're on a family plan with 10GB or more of service, you will pay roughly the same amount for the iPhone 6 over two years.
AT&T's executives make a big deal out of the fact that through the Next program they aren't subsidizing devices for consumers. But it's really just an accounting game they are playing, because if someone buys a brand new iPhone 6 and they choose not to pay for the whole thing all at once, AT&T is still providing a subsidy because it's allowing customers to pay off the device in monthly installments with no interest charge. The only difference in the latter scenario is that customers know how much they are paying each month for their device versus how much they are paying for their monthly service.
AT&T's head of mobility and business services, Ralph de la Vega, acknowledged as much at an investor conference in New York City on Friday. He said the most significant thing the Next program has done is teach consumers the true value of their mobile devices. The way the company is improving its profit margins and eliminating the device subsidy is by giving subscribers a financial incentive to use an existing device longer or to use a hand-me-down phone that's already paid for on the network, instead of being conditioned to upgrade to a brand new phone every couple of years.
"These customers are more knowledgeable about the value of their devices," he said. "If they want a new device, they know they have to pay for it."
He added that some people will always want the latest and greatest new phones, and AT&T is happy to sell them one. But his comments alluded to a shift in thinking among consumers who finally recognize that the true cost of an iPhone is not $200 but is instead $650.
The bottom line
When customers buy a new device, there's not much difference between a financed plan and a service contract.
Why? The two main benefits to device financing plans, such as the one that AT&T offers are this:
1. Potentially, cheaper rate on your monthly service plan.
2. No early termination fee for switching providers.
But these benefits only hold true if you already own your phone. If that is the case, you can save $15 a month if you are subscribed to a shared data plan of 6GB or less or $25 a month if you have a plan with 10GB or more of data.
Also, if you already own your phone and you aren't on a contract, you can leave AT&T at any time and you will pay no penalty for switching to another carrier. By contrast, if you're under a contract and you want to cancel before the end of that contract, then you pay an early termination fee. This fee is really meant to pay off the balance of the device you've been using. In fact, AT&T and all the other major carriers that still offer two-year contracts pro-rate the ETF, so that the penalty is actually reduced the longer you are on contract.
But the dynamics change for customers who are financing their devices, because if you end your service with AT&T before you've paid off your device, then you need to pay AT&T for the balance that remains on that device. What this means is that even though AT&T isn't calling it an early termination fee, it pretty much is, because you are still on the hook until the device is paid off.
What should you do?
The short answer is that it doesn't really matter unless you are subscribed to a 10GB or higher data plan. This means that the Next finance plan is ideal for people on a family plan. But if you're an individual, the difference between a contract and the Next plan are slight. That said, since AT&T isn't charging interest to finance new devices under the Next plan and since there doesn't appear to be a finance fee bundled into the contract pricing, you might as well stretch out your device payments rather than paying for the device up front. So I would recommend either taking the Next plan or a contract plan.
The Next finance plan might be considered slightly more appealing than the contract plan since you will be able to upgrade to a new phone in 18 months so long as you trade in your old device to AT&T. It is also slightly less expensive over two years and doesn't require an activation fee or upgrade fee. AT&T charges contract customers $40 to upgrade or start a new line of service.
But if you plan to hang onto your new iPhone 6 longer to take advantage of the lower service pricing or if you want to pass along that device to another family member, then you wouldn't be upgrading in 18 months anyway. And at that point the contract plan could still be fine for you.
I hope this advice was helpful. And good luck in your decision making!
In search of an unlocked iPhone 6 Plus
I am longtime AT&T customer. In fact, I'm still on the unlimited data plan. I renewed my contract last year when I bought the iPhone 5s when it was first released. Now I would like to get the iPhone 6 Plus. But I was told by AT&T that I need to get the new phone directly from Apple, since I will not be renewing the contract this year. However, on the Apple site I can only order a no-contract phone from T-Mobile. Would that version of the phone work on the AT&T network? Will the phone come unlocked?
Thanks for your advice and keep up the great work you do!
The AT&T representative I spoke to said you should be able to buy the iPhone 6 at full price. He said you could even finance it through the Next program. Now, the only concern I would have is that AT&T may require you to give up your unlimited data plan to do this.
The other option would be to buy the T-Mobile no-contract phone. But even this might be tricky. A T-Mobile representative said that if you pay full price for the no-contract version it will come unlocked. But an Apple representative told the International Business Times that the iPhone 6 and 6 Plus do not come unlocked out of the box.
"The T-Mobile iPhone is contract-free and can be used with the GSM carrier of your choice internationally, but comes preconfigured for use with T-Mobile and needs to be activated with T-Mobile in the United States," an Apple retail support representative told the publication. "To use the iPhone with another carrier in the United States, you will want to contact T-Mobile for your available options or wait for the unlocked version of the iPhone to be released."
The bottom line
I would wait until the iPhone 6 Plus is available in stores before I'd pull the trigger on buying it. That way you can go into an AT&T or Apple store and buy the device full price and get it up and running right there. You can also get assurance from AT&T that they won't terminate your unlimited data plan. And if by some chance it's not possible for you to buy an iPhone 6 Plus from AT&T at full price, you could go to the Apple store or a T-Mobile store and make sure that when you pop in the SIM card that it will work. Also, Apple will likely offer an unlocked version of the phone, too, which you'll be able to use on AT&T. I hope this advice was helpful. Good luck!
Ask Maggie is an advice column that answers readers' wireless and broadband questions. 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.
Update 9/13/14 7:50 pm: This story was updated with a chart explaining the price difference between AT&T's contract plan and Next 18 plan.