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Confused by new no-contract plans? You're not alone

Wireless contracts and device subsidies will soon go the way of the dinosaur. CNET's Marguerite Reardon explains how to navigate the changing mobile landscape.

Marguerite Reardon Former 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.
Marguerite Reardon
9 min read

The wireless industry is in the midst of massive change as carriers kill service contracts and eliminate device subsidies.

Most of these changes are positive for consumers, who are finding better deals on service plans and devices. The flip side is that the new plans and special offers can be confusing. So confusing, in fact, that I spend most of my time researching and writing about service plans to better explain them to my readers. Mix all this service-plan confusion with the never-ending quest for the best deal on the coveted iPhone, and some consumers may feel like ripping their hair out in frustration.

In this week's column, I try to alleviate some of this anxiety and frustration by offering advice to a couple of readers looking to get the most bang for their buck.

To upgrade or not to upgrade

Dear Maggie,

Sprint's CEO recently said the company will probably do away with subsidizing phones for two-year contracts in 2015. It sounds like this will happen in mid-2015, which would be before the next iPhone release. I currently have an upgrade-eligible line but don't want to waste the upgrade on that albatross of a phone known as the iPhone 6. I am hopeful that an "iPhone 6S" will be an improvement over the iPhone 6 and that Apple will fix some of the things I don't like about the current iPhone, such as the bulging camera lens and the cheap aesthetics. But I am worried I will lose my upgrade if I wait.

Do you think I should utilize the upgrade now, sell that phone when the new iPhone comes out, and use the cash to buy the new iPhone? Or should I just wait it out and try to call their bluff next year?


Dear Luke,

This is an interesting question. Rules for upgrading devices, and Apple's once-a-year upgrade cycle, have forced many people to carefully calculate their upgrades and new smartphone purchases. In this particular case, I honestly think there are too many unknowns for you to do anything.


First, we don't know for certain that Sprint will get rid of its two-year contracts. The company's CEO, Marcelo Claure, said on a conference call with investors in November that the company was considering such a move. But the company hasn't made an announcement yet.

But all the major wireless carriers in the US are moving away from contract plans. T-Mobile was the first operator to eliminate contracts and instead offers a monthly installment program that lets customers pay off their phones over two years.

AT&T and Verizon have introduced similar programs. And Sprint has been experimenting with the business model via a lease program for the new iPhone 6. But to date, all of these operators have also retained their contract plans. Still, AT&T and Verizon have been aggressively pushing monthly phone payments over the contract plans. And they've been offering special deals as an incentive to attract customers to the plans. For many customers, the total cost of ownership on a smartphone with service and upgrade fees in place over a two-year period is less expensive than a traditional two-year contract with a subsidized device.

The other big unknown is which new features and capabilities Apple will include in next year's iPhone. I can tell you that the rumor mill usually oversells the capabilities of the next-generation product. More often than not the changes made to newer versions of the iPhone are incremental, and many fans are often disappointed. Also, given that this year's iPhone has been completely redesigned and is offered in two new sizes, my guess is that next year's device won't have any drastic changes from a design perspective.

So taking these two major unknown factors into account, what should you do?

First, I wouldn't delay upgrading to a new smartphone now in the hopes that Apple will introduce something you like better next year. If you need a new phone and you want to stay with Sprint for another two years, get a new phone now. If you don't like the iPhone 6, consider an Android device. There are tons to choose from.

If you don't need a new smartphone now and are only considering buying a new one because you don't want to "lose" your upgrade, I think you should wait. Even if Sprint eliminates device subsidies midway through this year, it's unlikely that the carrier will expect customers to pay full price at the time of purchase for a new phone. This has been the trend among carriers. They recognize that consumers aren't willing to shell out full price for a new phone at the time of purchase. Instead, they offer the devices with no money down when you sign up for the plan. And then they tack on the device fee every month until it's paid off. AT&T and Verizon offer a plan in which you can upgrade early if you're willing to trade in your old device for a new one. If you want to keep your phone, you can. You just have to finish paying it off.

The truth is that these new monthly installment plans look exactly like a contract and device subsidy to a consumer. Most customers don't realize it, but even with a subsidy, you still pay full price for your smartphone. The only difference is that in the past, wireless operators have bundled the cost of the device into the monthly service over the 24-month contract period. And if you cancelled service early, you were hit with a large early termination fee.

The only thing different with the new programs is that the carriers have explicitly told customers what it costs to buy a new phone. But they've also provided an incentive for people to keep their phones longer or shop around for a less expensive model. How? If you've already paid for your phone, you actually pay less per month for your service.

The other thing is that even though T-Mobile executives like to claim that they have eliminated contracts, and that customers are no longer tied to an early-termination fee, you are still responsible for paying the balance of the device if you choose to end your service before the phone is paid off. This fee may not be called an early-termination fee, but it's essentially the same thing.

What does all this mean for you? What you are most concerned about is how such a change in Sprint's business will affect you and how much it costs to buy a new phone. Though I can't guarantee you will get a better deal under a no-subsidy model from Sprint, my guess is that customers will come out ahead. Why? The wireless market is extremely competitive and Sprint is struggling. For this reason alone, I think deals will likely only get better for Sprint customers in the future. Of course, Sprint will probably offer the best deals to new customers it's trying to attract to its service. But the company would be taking too much of a gamble if it introduced changes that actually make their most loyal customers pay more than they are now.

If Sprint does introduce a plan that will end up costing you a lot more, you can switch carriers. The market is very competitive right now. And as operators fight for customers, the deals are only going to get better for all wireless customers.

The bottom line:
Don't buy the iPhone 6 just to use your "upgrade." I would wait to see how Sprint changes its plans in 2015 and I'd wait to see what new features Apple introduces on the next iPhone. Once you have that information, you can make an informed decision regarding switching carriers or picking a new device. And if you wait, you won't be saddled with a new two-year contract and smartphone you will have to sell.

I hope this advice is helpful. Good luck!

Keeping the Verizon unlimited plan

Dear Maggie,

I'm currently with Verizon on an unlimited data plan. Through my employer, I receive a combination of special discounts. My monthly bill with taxes and fees is only $75 a month for my individual line. Because of my special discount on my unlimited data plan, I don't want to sign a new contract or get on Verizon's new Edge plan. If I do that, I will have to give up the unlimited plan and I will lose half my employer discount. Also, I've done the math and I would be getting less data for more money.

So I need to buy a device at full price. My quandary now is should I buy a previously owned iPhone 5s, which I can get with additional accessories and Apple Care for $385 or pay $749 (plus tax) for a 64GB iPhone 6. I've had an Android device in the past and am not interested in buying another.

Please give me your opinion.


Dear Ellen,

This a great question. As carriers start to do away with their phone-subsidy programs and encourage people to buy their devices outright, customers are realizing just how much smartphones really cost. And while many people felt they could stomach paying $200 or $300 for a new smartphone every couple of years, the reality is that the true price of a device is much, much more.

The iPhone 6 now comes in two sizes. Getty Images

This is why I typically suggest buying a lower cost Android device, such as the Moto X, which is $400 or the Moto G, which costs $180 without contracts. But for fans of the iPhone, there are fewer options. There is only one manufacturer of the iPhone: Apple. And Apple alone sets the retail price of its devices. There are rare occasions where retailers may run special promotions for the iPhone, but those usually require customers to sign up for a two-year contract with a carrier.

One option for people looking for a less expensive alternative to the latest iPhone model is to buy the previous generation of the device. Apple usually sells last year's iPhone for a discount of $100. This usually means that if the current model is $200 with a two-year contract, last year's device will be at least $100 with a contract. Apple is currently selling the 32GB iPhone 5s new for $600 without a contract. The iPhone 6 with 64GB is $750.

The questions that you need to ask yourself if you're considering buying a new iPhone are how much you're willing to pay and if you think the $150 difference between the older and newer models is significant.

For me, $750 for any smartphone is a lot of money. But I also think that $600 is too much to spend on a smartphone, especially one that is more than a year old. I don't usually recommend buying older generation devices too often because the technology ages so quickly. What's more, as Apple rolls out new versions of its iOS software, the new features and tweaks introduced in the latest software are less likely to work optimally on older hardware.

That's why I would consider buying an Android phone, since you can get a more current model for a lot less than what you'd pay to buy an older iPhone.. But since you have your heart set on iOS, I think finding a used device is probably your best option if you're trying to save money.

The pre-owned 32GB iPhone 5s for $385 sounds like a good deal to me. That's nearly half the price you'd pay if you bought it new. And it's $365 less expensive than a brand new iPhone 6.

What will you be missing by getting the iPhone 5s instead of the iPhone 6? When comparing the specifications, you'll find that the two devices are very similar. But there are a few key differences. The iPhone 6 has a larger screen, different memory configurations (the iPhone 6 isn't offered in 32GB -- only 16GB and 64GB) and an NFC, or near field communications, chip that enables Apple Pay, the service that allows you to pay for things by tapping your phone to a payment terminal. Aside from these tweaks and new features, the iPhone 6 is not much different from the iPhone 5s in terms of features. And since the iPhone 5s also runs the updated iOS 8, you aren't likely to see much difference between the models in terms of performance.

The bottom line:
If you must have an iPhone and you need to buy the device at full price, my advice is to snag the really good deal on the iPhone 5s and save the extra $365.

I hope this advice is helpful.

CNET's Ask Maggie column answers readers' wireless and broadband questions. If you have a question, send me an e-mail at maggie.reardon@cbsinteractive.com. Please put "Ask Maggie" in the subject header. You can also follow me on Facebook on my Ask Maggie page.