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Subsidies, contracts and how the upgrade plans of T-Mobile JUMP!, AT&T Next and Verizon Edge add up

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Now we can get to subsidies and the rate plan debate. After unveiling AT&T Next, T-Mobile’s CEO John Legere, a man who is generally frank and to the point, cited that AT&T was charging you twice for equipment. Once for the payment plan, then some baked in price that was part of the rate plan. However, it is a bit of a misnomer to claim that rate plans are all about subsidies because they are not.

Mr. Legere and T-Mobile have been very effective at delivering the “un-carrier” branding with a new rate structure and Equipment Installment Payments for devices, effectively separating the equipment from rate plan so to speak.

WHAT IS THE STORY WITH SUBSIDIES?

It is a common belief that in the US, rate plans are structured with equipment subsidy recovery dollars incorporated into them. The common number thrown around is $20 per month per plan. However, you will not find definitive data anywhere that points directly at a set dollar amount of monthly recurring revenue that is set-aside solely for equipment subsidies. It is really just a fancy word for higher overall overhead and margins in their respective rate plans. There is more than the equipment subsidy involved in the cost of acquiring or retaining a customer. Yes, the model allows the carrier to recoup the expense of buying the equipment and selling it at a loss on contract (subsidy), but it also covers fixed overhead costs (lights, cell towers, power, people) and hopefully make a profit which we can all agree gets reinvested heavily into the carrier’s infrastructure.

However, subsidies are not a means to an end in themselves. Subsidies have been around since wireless started going main-stream decades ago.  Some of our readership is young enough to not know that once upon a time, pretty much every phone was free with service. That T-Mobile has lower priced rate plans is an economic mandate of having the smallest physical network out of the four major carriers in the US and having been struggling to keep subscribers. It simply cannot command the same rates that AT&T and Verizon do, but know this - if it could, it would.

For the sake of argument, we put together a comparison which pits the three upgrade plans against each other, incorporating an assumption that $20 per month of the monthly recurring revenue is geared toward the subsidized cost of the phone. In this case, the upgrade is calculated every 12 months.  For the remaining series of comparisons, we use the Samsung Galaxy S4.

EQUIPMENT COSTS BASED ON ASSUMED SUBSIDIES

Subsidies, contracts and how the upgrade plans of T-Mobile JUMP!, AT&T Next and Verizon Edge add up

We then compared options based on subsidized equipment cost in conjunction with a single line smarthphone plan offered by each carrier, without adding any other options (though we will note differences where appropriate), and contrast that with these new equipment payment plans using the upgrade where allowed.

We chose middle-of-the-road plans from each carrier, for T-Mobile, that mean the Simple Choice Plan with 2GB of data which is $60 per month. On Verizon, that is the Share Everything with 2GB of data which is $100 per month, and on AT&T it is the unlimited minutes with 3GB of data which comes to $99.99 per month (without unlimited text messaging for another $20).

UPGRADE COSTS INCLUDING CARRIER RATE PLANS

Subsidies, contracts and how the upgrade plans of T-Mobile JUMP!, AT&T Next and Verizon Edge add up

  1. Combined equipment installment payment, plus any applicable fees associated with the upgrade plan.
  2. The cumulative cost of service, installment payments and upgrade fees at six months and one year as allowed by JUMP! and Verizon Edge.

Adding AT&T's unlimited text option would have added an additional $240 per year.

We then compared these three upgrade plans on a level playing field, upgrading annually, accounting only the equipment charges.  Annual upgrades used to be a common occurrence.  While they are customer friendly, they are not very healthy to the carrier's bottom line.  Before you go on a rant about "greedy corporations," remember that those profits allow them to sell you the latest gear, keep rate plans in check and if you have a retirement account, odds are you are invested in them anyway.

UPGRADE COSTS IF YOU UPGRADE ANNUALLY

Subsidies, contracts and how the upgrade plans of T-Mobile JUMP!, AT&T Next and Verizon Edge add up

Verizon Edge shines through with very competitive numbers, but then again, T-Mobile's JUMP! also includes full equipment protection against damage, loss and theft.  That is an option on Verizon and AT&T plans and naturally they cost extra.  Incorporating those costs bring Verizon Edge and AT&T Next more-or-less to parity with JUMP!

What can we draw from all this? Well, it reaffirms that T-Mobile is a great all around option for those on a budget, and it is even more affordable if you choose to upgrade only once per year.  However, that is not telling you anything you did not already know. The other not-so-subtle nuances still come into consideration, choices in hardware, and coverage being the two most obvious options a customer must pay attention to. On a pure comparison of equipment cost as outlined in these plans, Verizon Edge is the least expensive of the bunch. AT&T Next is not a bargain in that it builds a 12 month upgrade cycle on a 20 month payment plan, effectively making you pay more for the equipment before allowing you to upgrade. T-Mobile’s JUMP! is well rounded and brings a lot of value to the game because of the equipment coverage that is part of the plan.

When you buy your equipment through a carrier, it has already paid its negotiated wholesale price to the manufacturer. That money is gone regardless of if you buy the device or not. A case and point is the recent report about Verizon being on the hook to OEMs for a cool $45 billion (mostly to Apple) in purchase agreements. Sprint acknowledged that it paid 40% more for its iPhone stock than its competitors. In fact, entering into its agreement with Apple, Sprint spent all its cash to do the deal and floated an additional $7 billion in debt. Despite that, Sprint’s rates did not go up even though its de-facto subsidies were much higher.

So why the disparity in service plan pricing? It is a simpler explanation than equations for subsidies for equipment. It is that and overhead, coverage and marketing. Verizon and AT&T have about 65% of the wireless market in the US, and pretty much 100% of the profits. They are also the only two major carriers that have managed to continuously grow its subscriber base over the past 10 years.  They have larger (and older) networks.  AT&T has had its share of network issues courtesy of demands from iPhone users back when it was an exclusive device. Now, it looks like AT&T is starting to get its act together and is building its LTE network at a rapid clip. Verizon has reinvested its profits and masterfully built out its LTE network, completing the process ahead of schedule. Sprint and T-Mobile have been stagnant on the subscriber front. Pretty much the only way to attract customers is through pricing (because frankly, T-Mobile cannot compete with Verizon with its network alone).

The number 3 and 4 carriers in the US have fresh infusions of cash and talent thanks to recent mergers and acquisitions to hopefully change the landscape of the market. T-Mobile is having a huge impact with its “un-carrier” branding, and it deserves credit for starting what will certainly be a trend for mobile equipment across the industry. T-Mobile’s (and the other carriers’) margin on equipment (not to mention accessories) is definitely higher than it is on its network. That is a big deal, because T-Mobile has launched a model that virtually guarantees it (and other carriers) will receive full retail for the equipment it sells, no matter what.

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56 Comments
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posted on 19 Jul 2013, 10:05 2

1. wendygarett (unregistered)


Too many confusion for those plan and end up screwed by Carrier...

might as well pick lumia 520 in the end and surfing for the spare enjoying WiFi in Starbucks...

$190 for lumia 520, $5 for a cup of Starbucks per day, WiFi for $0 per day...

enjoy good coffee, good wifi, with a lag-free device, killing three bird with one stone :)

posted on 19 Jul 2013, 10:06 8

2. ajac09 (Posts: 1481; Member since: 30 Sep 2009)


if you want a s**tty phone sure

posted on 19 Jul 2013, 10:09 2

3. wendygarett (unregistered)


Enjoy your beast phone in a carrier's cage...
http://www.phonearena.com/news/No-Root-for-you-as-the-newest-update-for-the-Verizon-Samsung-Galaxy-S4-kills-it_id45422

posted on 21 Jul 2013, 10:39

51. networkdood (Posts: 6330; Member since: 31 Mar 2010)


Wendytroll, this is very temporary and only on one carrier.

posted on 19 Jul 2013, 10:12

4. Alantef (Posts: 288; Member since: 14 Sep 2011)


lol i was gonna say the same thing lol

posted on 19 Jul 2013, 10:18

5. VTEChump (Posts: 12; Member since: 19 Jul 2013)


So if you "believe" in the $20/month subsidy built into the contract on ATT and Verizon, then both their plans are a complete ripoff compared to T-Mobile and EVEN THEIR OWN 2 year contract plans.!. I don't understand why you illustrate this in only one table in the whole article. ATT and Verizon are a joke.

posted on 19 Jul 2013, 10:21 2

6. wendygarett (unregistered)


They are carriers, what do you expect? Confusion everywhere...

posted on 19 Jul 2013, 10:25

7. VTEChump (Posts: 12; Member since: 19 Jul 2013)


Sorry, I guess it is illustrated in the first two tables on page 4. Still confusing.

posted on 19 Jul 2013, 10:30

11. Maxwell.R (Posts: 214; Member since: 20 Sep 2012)


That number gets thrown around everywhere with no validation. It was likely drawn from the time when T-Mobile offered two tiers of plans, one to accommodate subsidized equipment, the other if you bought at full retail. However, a flat rate makes no sense in the other carrier's models (especially AT&T's whose plans are arguably built on a previous generation model). Subsidies, like other customer facing price points, are a moving target. They change like the weather and that is where the argument about subsidies lose some ground.

posted on 19 Jul 2013, 11:22

27. aliam223 (Posts: 2; Member since: 19 Jul 2013)


what is SPRINT doing about this??? SMH

posted on 22 Jul 2013, 14:50

54. miles16852 (Posts: 241; Member since: 20 Oct 2011)


what is that stupid SMH ???

posted on 19 Jul 2013, 10:27 4

8. HASHTAG (unregistered)


So it's okay to be confused after reading this article, right? Because I am definitely confused.

posted on 19 Jul 2013, 10:30 4

10. VTEChump (Posts: 12; Member since: 19 Jul 2013)


That is exactly what the carriers want:). Basically, an argument can be made for T-mobile deal if you need to upgrade phones. But IMHO, the ATT and Verizon deals are a ripoff. You would be better off signing two-year contract's and selling phone on craigslist if you need to upgrade.

posted on 19 Jul 2013, 10:32 2

12. Maxwell.R (Posts: 214; Member since: 20 Sep 2012)


That is the best way to go across the board, buy a phone or two at/near retail and fund your own upgrades through selling your old gear. The second hand market for smartphones is very active.

posted on 19 Jul 2013, 10:37

14. VTEChump (Posts: 12; Member since: 19 Jul 2013)


Agree, but the problem with that on ATT and Verizon (once again if you believe in the $20/month subsidy) is you are paying that subsidy, even though you paid full price for the phone. So they are charging you for a phone you have already paid for.

posted on 19 Jul 2013, 10:46 1

19. lolrus (Posts: 29; Member since: 18 May 2013)


Coming from someone who sells ATT, VZW and T-Mobile at my job, and thus have a pretty comprehensive knowledge of all the plans, ATT Next and VZW Edge seem like a rip off.

T-Mobile Jump is reasonable, but you can still get subsidized phones on two year contracts through them at third party retailers (check out my long ish post further down) and they have a pretty low ETF which makes the value plans in general not great if you want to get a phone through them anyway.

As much as my employers would hate for me to say this, the best deal is always going to be a Nexus 4 unlocked and putting it on T-Mobile's insane $30 prepaid plan. But if you don't like paying $300 up front, there are some decent options on two year contracts still.

Long story short, I wouldn't consider any of these early upgrade plans, they seem awful compared to the previous two structures of subsidies and unlocked/prepaid.

posted on 19 Jul 2013, 15:56

40. Droid_X_Doug (Posts: 5993; Member since: 22 Dec 2010)


What $30 prepaid plan? Link please. Seriously, I am not being snarky. I went to T-Mo and couldn't find a $30 prepaid plan. The best I found was a $50/month prepaid plan, but it was limited to like 250 Mb/month data on 4G/LTE.

posted on 19 Jul 2013, 20:25

43. _PHug_ (Posts: 444; Member since: 11 Oct 2011)


Can't find it on T-mo's web site easily but the plan is a partnership with Walmart.

http://www.walmart.com/ip/Tmobile-30-Wireless-Airtime-Card/15443357

posted on 20 Jul 2013, 16:52

49. lolrus (Posts: 29; Member since: 18 May 2013)


Yeah, that's what I'm referring to. You only get 5GB of 4g speeds and 100 minutes of talk. But you can just VoIP and 5GB is plenty for someone like me.

If I wasn't on a Verizon dealer plan it would be that one for me.

posted on 22 Jul 2013, 15:01

55. miles16852 (Posts: 241; Member since: 20 Oct 2011)


or google tmobile prepaid and you easily get,,,
http://prepaid-phones.t-mobile.com/prepaid-plans

posted on 19 Jul 2013, 11:39

30. Maxwell.R (Posts: 214; Member since: 20 Sep 2012)


The subsidy as it gets thrown around is a misnomer and not accurate.

posted on 19 Jul 2013, 10:36 2

13. wendygarett (unregistered)


Confusion is the greatest definition to define them.

We pay their confused plan, with confused money you paid till you lost count...

and what do we get? No unlocked bootloader... Jailed and fined us for secretly switched the unlocked Sims... Software update? help mercy what the hell is that?

Call me a troll or whatever, I'm telling this just to alert some blind customers who pay extra for nothing, and end up financial crisis these day...

posted on 21 Jul 2013, 10:49

52. networkdood (Posts: 6330; Member since: 31 Mar 2010)


You are trolling and doing so incoherently.

posted on 19 Jul 2013, 10:38

16. Maxwell.R (Posts: 214; Member since: 20 Sep 2012)


I'm going to be tweaking some things to give the article some more breathing room. Hopefully that will help.

posted on 19 Jul 2013, 10:44

18. Whateverman (Posts: 3271; Member since: 17 May 2009)


Lmao! I hope so, cause I'm confused as hell! But the way I see it, since I've already opted for equipment coverage on my Note2, I may as well go to a Jump! Plan. It gives me the equipment protection I'm already paying for and the opportunity to upgrade early. Kinda looks like a win-win, but I'm not sure. If I choose to skip my upgrade and keep the phone the full 2 years, is it mine? Or do I still have to turn it in when I upgrade? If I pay the $20 for the whole 20 months, I assume it's mine!

posted on 19 Jul 2013, 10:59 1

23. lolrus (Posts: 29; Member since: 18 May 2013)


If I understand it correctly, you have the option (whenever you want to upgrade) of either paying off the phone or turning it in.

Could be wrong, but that makes sense to me.

posted on 19 Jul 2013, 11:20

26. Whateverman (Posts: 3271; Member since: 17 May 2009)


I hope you're right. That just makes sense. Thanks!

posted on 19 Jul 2013, 10:28

9. Cha7520 (Posts: 221; Member since: 31 Oct 2010)


I'm just going to by the Nexus 5 in Oct and buy a AT&T Sim card using Straight Talk for $45 unlimited...forget all the confusion! LOL

posted on 19 Jul 2013, 16:01

41. Droid_X_Doug (Posts: 5993; Member since: 22 Dec 2010)


Link? I saw AT&T offering a $60/month prepaid with unlimited talk and text and 3 Gb/month data. Is there a better option?

posted on 19 Jul 2013, 20:28

44. _PHug_ (Posts: 444; Member since: 11 Oct 2011)


He said Straight Talk.

http://www.straighttalk.com

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