The latest trend in smartphone upgrades is kind of like renting to own your appliances. That is to say, it’s an expensive option that’s likely to squeeze lower-income customers.
Today, AT&T became the second mobile carrier to roll out faster upgrade options for customers who pay monthly installments. AT&T’s Next plan is an answer to T-Mobile’s JUMP! program, announced last week, and was launched amid rumors that Verizon will be announcing a similar scheme called VZ Edge in August.
The plans differ a bit in terms of particulars: AT&T will allow customers to choose between the existing two-year contract and Next, which charges a monthly fee to mortgage the device in lieu of a full upfront payment. After 12 months, users can either upgrade and move to a new payment plan (requiring them to turn in their old device) or continue to pay until the device is theirs outright after 20 months.
T-Mobile will charge a $10 fee, a down payment and a monthly payment for the phone. With T-Mobile JUMP!, users can receive upgrades every six months—as long as they’re willing to turn in the older device and cover another down payment. Details of Verizon’s plan are still spotty, but it’s clear that a monthly payment plan is involved, and that users will be allowed to upgrade to a new device once they’ve paid off 50% of the old one.
It’s not surprising that AT&T is following T-Mobile’s lead. An upgrade period of two years is no longer acceptable for most technophiles. For example, iPhone users who last upgraded in 2011 are now two models behind, with another potential upgrade rumored to be around the corner.
The plans should also appeal to the growing demographic of low-income smartphone owners: 86% of American adults making less than $30,000 own cellphones, and nearly half of them say their device is a smartphone. But the price of buying a device outright (the iPhone 5 starts at $199.99 with a two-year contract at AT&T and Verizon) may deter buyers who lack disposable income. T-Mobile’s plan seems less than ideal for those looking to save money on devices. Six months of iPhone 5 ownership would cost users $331, so upgrading as often as possible would cost almost $700 a year (and actually owning one would cost nearly as much).
AT&T’s plan will probably hold the most appeal for penny pinchers, though we don’t yet know the details of its monthly pricing schemes. T-Mobile’s plan, on the other hand, definitely isn’t going to save anyone money—unless you’re a total upgrade junky, in which case you now have a (relatively) cheap way to get new iPhones faster than Apple even makes them. Verizon’s VZ Edge may combine the best of those plans, if the downpayment is low enough. Either way, it’s safe to say that the age of 24-month upgrades is nearing its end.