Apple's iPhone upgrade program: What you need to know
In this edition of Ask Maggie, CNET's Marguerite Reardon looks into Apple's new program that lets customers upgrade their iPhone every year. How does it compare with similar plans from the big wireless carriers?
Marguerite ReardonFormer senior reporter
Marguerite Reardon started as a CNET News reporter in 2004, covering cellphone services, broadband, citywide Wi-Fi, the Net neutrality debate and the consolidation of the phone companies.
Watch this: Is the Apple iPhone upgrade program right for you?
Who wouldn't want a new iPhone every year?
Apple's newly announced iPhone Upgrade Program offers customers the opportunity to upgrade their smartphone each year by paying a monthly installment. In this column, I'll look at whether the plan is worth it.
Apple's plan mimics similar deals offered by the four major wireless operators, which are ditching two-year service contracts with heavily subsidized devices. Instead they're offering plans that require customers to pay full price for a phone in exchange for lower service fees. T-Mobile started the no-contract trend two years ago and Verizon is the latest to follow suit.
Installment plans help blunt the sticker shock of a new smartphone. And the upgrade plans help drive more iPhone sales.
Apple's new plan could be a boon for the company, which will not only move more inventory, but will also get a steady stream of older devices it can resell.
The new financing program will be available only at Apple retail locations. Customers won't be able to sign up for it online. Devices bought through the program will be unlocked, but they must be activated on AT&T, Sprint, T-Mobile or Verizon, the company said during the announcement.
I'm sure you're getting lots of questions about the new iPhone Upgrade program. Could explain how it works? Also, how does it compare to the installment plans the carriers have? I'm a T-Mobile customer, so I don't have the option of a contract plan. Should I be considering this plan?
You're right, I've gotten tons of emails asking how Apple's program works and stacks up against carrier plans. To help answer all these questions, I put together an FAQ.
The pricing is on top of the monthly fee you'll pay for wireless service from your carrier.
Do customers have to return their old iPhone when upgrading to the next model?
Apple's program is essentially an installment plan combined with an early upgrade program. It spreads payments for the new phone over 24 months. Customers can upgrade free after 12 payments. To upgrade, they must trade in their existing iPhone; then the clock resets on the monthly payments for the new device.
If customers choose not to upgrade, they can continue paying off the device. After 24 months, they'll own the phone and can keep it, sell it, give it to a family member or use it as a backup device.
If customers want a new phone after making 24 payments, they can keep their paid-off phone and sign up for a new device, assuming Apple continues the program.
The plan offers 'unlocked' iPhones. What are they and why would I want one?
An unlocked smartphone doesn't have software installed from a specific wireless operator to prevent it from being used on a rival's network. iPhones sold for and by major carriers include a software lock. (Verizon is the big exception. All its 4G LTE devices come unlocked.) AT&T and Sprint will generally unlock devices once they're paid for.
Unlocked phones let customers avoid contracts and switch carriers if they're unhappy with service. They also let customers swap SIM cards so the device can be used with a local service provider when traveling abroad. This can save big bucks on service charges while out of the country.
In the past, unlocked iPhones didn't work on all US carriers. Will the unlocked version sold through this program work?
In years gone by, Apple built multiple versions of the iPhone that included technology compatible with particular wireless operators. Unlocked versions of the phone were often tailored more for the European market, which uses a network technology called GSM to deliver voice service. AT&T and T-Mobile in the U.S. use GSM, while Verizon and Sprint use a technology called CDMA to deliver voice service. Because of this difference, unlocked iPhones sold by Apple often didn't support the CDMA technology needed to operate on Verizon and Sprint.
Apple says the iPhone 6S and 6S Plus sold through this program will come unlocked and will work on any of the four major US carriers' networks.
How does pricing for Apple's new plan compare to similar plans from the carriers?
Look at the chart below and you'll see that Apple's program is likely to be pricier than most of the other offers.
One thing to note is that included in the monthly fee is a subscription to Apple Care+, Apple's insurance and extended warranty program. The retail cost of this service is $129. If you look at the total price of a new 16GB iPhone 6S under the Apple program, it's roughly $129 more than the full retail price of the device, which is $650.
Each of the four major carriers in the US offers installment and/or early upgrade programs for new iPhones. And each of those is likely to be at least slightly less expensive than Apple's plan. But remember that these plans don't include insurance or an extended warranty. Customers wanting those features must pay extra, and the per month and total cost could be pricier than Apple's offer.
Based on current pricing, Sprint offers the best value for customers who'd like to upgrade to a new iPhone every year, through a leasing program called iPhone Forever. Right now Sprint is offering a promotion that lets customers lease a new iPhone for $15 a month with the option to upgrade anytime they want. In order to get this price, customers have to turn in a functioning smartphone. Without a device to trade-in, the price is $22 a month to lease a new iPhone 6S.
For iPhone fans who plan to keep their devices longer, T-Mobile's Jump On Demand offers a great value. The plan, available only in retail stores, charges a monthly fee and lets customers upgrade up to three times a year.
Following Apple's announcement, T-Mobile sweetened its deal by dropping the monthly lease price for a new 16GB iPhone 6S to $20 a month. But the real value of the T-Mobile offer over all the other plans is that it lets customers pay $164 at the end of the lease period to own the phone. This, coupled with the newly reduced monthly fee, brings the total cost of a new iPhone under T-Mobile's Jump plan to $524, a savings of $126 over the full retail price of the phone.
I know Apple Care+ is included in the monthly fee under Apple's program. What benefit does it provide over the standard warranty?
Apple iPhones come with a limited one-year warranty, which covers manufacturer defects, as well as 90 days of support. AppleCare+, which now costs $129, extends the basic warranty to two years. It also adds up to two incidents of accidental damage coverage, each subject to a service fee of $99 for the iPhone 6S and 6S Plus.
The bottom line: What should I do?
Apple's upgrade program is attractive only for people looking to upgrade to the latest iPhone every year.
Even then, Sprint and T-Mobile each offer less expensive options, especially with the promotions they're currently running.
If you'd rather use AT&T or Verizon as your service provider, and you'd like to upgrade your iPhone each year, the Apple upgrade program is appealing. It's priced slightly lower than AT&T's Next program, which also allows the option to upgrade once a year, and it includes the Apple Care+ warranty and insurance. For Verizon subscribers, it's the only option if you want to upgrade without paying the full price for a new device every year.
If you plan to keep your device for at least two years and you don't really need or want to spend extra money on the Apple Care+ service, then almost any offer from one of the wireless carriers will likely cost you less over a 24-month period than Apple's plan.
I hope this advice was helpful, and 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.