The Wrong Way (and One Right Way) to Upgrade Your Phone at Your Own Pace

New early-upgrade options are confusing and pricey. Some deals!

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From an AT&T video, an explanation of the 20 monthly payments for a Next smartphone upgrade

My head hurts. I’ve been reading up on AT&T Next, T-Mobile Jump and Verizon Edge, the three new wireless-carrier options which allow consumers to upgrade their phones more frequently than the standard two-year time frame. The details of the three offerings vary, but all involve divvying up the cost of a new phone into monthly payments of one sort or another — on top of whatever else you’re paying for service — and turning in your old handset to get the new one.

Man, are these deals confusing. And even though the monthly charges aren’t ginormous, they add up into deals that don’t sound so much like deals. My colleague Jared Newman was skeptical about T-Mobile and AT&T’s plans last week, and there’s no reason to classify Verizon’s offering as anything other than more of the same.

The Verge’s Nilay Patel rips into the whole concept:

In the end, what AT&T and Verizon are doing is simple: the cost of device subsidies eats into their bottom line, and they’re taking advantage of consumer desire for new phones faster as a way to keep their plan prices high while directly passing on the full retail cost of the phone to customers. This is bad — you can argue about the specific details and which plans might be better at each point in the road, but the final result is that instead of competing to provide better service at lower prices, the two major carriers in America are competing to find innovative ways of maintaining their historically inflated prices while boosting their revenue and providing substantially less value to their customers.

In another Verge post, Dante D’Orazio does the math on the three carriers’ deals. His analysis makes T-Mobile’s version look most economical. But he concludes that almost everybody should avoid all of them.

I don’t think I’m being rash to expect that these these plans will flop, big time. They’re too hopelessly convoluted. AT&T and T-Mobile’s versions involve a six-month upgrade cycle which doesn’t make sense given that hardware makers don’t release upgraded models that rapidly. And AT&T and Verizon’s variants essentially leaves you double-paying once you’ve upgraded, since both carriers already build a subsidy payback into their rates — once which never goes away, even after you’ve paid off the price of a phone.

All three variants bring to mind Best Buy’s ill-fated Buy Back program, which the retailing behemoth unveiled with a star-studded Super Bowl ad in 2011. That deal involved paying Best Buy a fee when you bought a new gadget in return for the right to resell it to the merchant at a later date, for a buy-back price which decreased the longer you waited. Within 14 months, the company decided to scrap the entire concept, presumably a sign that early adopters didn’t want to do their early adopting this way.

So are smartphone nerds who don’t have unlimited disposable income out of luck? Actually, there is a strategy for frequent or semi-frequent upgrades that works reasonably well. I’ve used it myself for years. And here it is:

    1. Buy a phone.
    2. If you can swing it, give thought, at least, to simply paying full price for said phone so you don’t have to worry about an early termination fee later. But if you do sign a contract in return for a price break, think of yourself as having bought an expensive gadget anyhow; one way or another, your carrier is going to extract the full price out of you.
    3. Keep the box and all the accessories. Come to think of it, you shouldn’t even unwrap the USB cable and headphones.
    4. Treat the phone gingerly, so it doesn’t get unneccesarily banged up. (You might want to consider sticking it in a case.)
    5. Use the phone until a new one comes along that looks so much nicer that you wish to own it. Depending on your tastes, this could happen quickly. Or maybe not.
    6. If you have to pay an early termination fee to end any commitment to your carrier, do so.
    7. If possible, get your current phone unlocked — something AT&T, for instance, will do as long as the phone is fully paid for.
    8. Here’s the key part: Sell your phone yourself. If you’re comfortable using eBay or Craigslist, do it that way. (I’ve sold multiple phones and other devices on eBay and have consistently been pleasantly surprised by how much people have been willing to pay.)
    9. If eBay and Craigslist sound too complicated and/or risky, use a simpler service such as Gazelle or Amazon’s trade-in program. You’ll probably get less money than you would on eBay or Craigslist, but with less effort and risk.
    10. Use the money you got to help pay for your next phone.
    11. That’s it! (At least until you once again want a new phone.)

How much will this approach cost you? It all depends on which phone you’ve got, how you sell it and how much the new one you want goes for. You might be happy with the bottom line, especially if you’re selling an iPhone, a model which holds its value remarkably well. (On eBay, it’s possible to clear $500 for a minty 16GB iPhone 5, which sells for $649 new.)

But I’m not going to tell you it’ll be cheap. Smartphones are pricey gadgets, and buying one or two of them a year is, by definition, an expensive habit. Chopping up the cost, as these new carrier upgrade options do, doesn’t change that — all it does is make it harder to figure out how much you’re forking over for the privilege.

Here’s how wireless carriers could help frequent upgraders in a less opaque way: They could simply buy back your phone in much the same way that Gazelle and Amazon do, and allow you to use the proceeds to pay off part of the subsidy they gave you for the phone in the first place. Unlike Jump, Next and Edge, such an offer wouldn’t mask the high cost of being an early adopter. It might, however, be something better: a proposition worth considering.