Subsidies, contracts and how the upgrade plans of T-Mobile JUMP!, AT&T Next and Verizon Edge add up
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
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
- Combined equipment installment payment, plus any applicable fees associated with the upgrade plan.
- 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
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.
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 $0 per day...
enjoy good coffee, good wifi, with a lag-free device, killing three bird with one stone :)
3. wendygarett (unregistered)
Enjoy your beast phone in a carrier's cage...
51. networkdood (Posts: 6290; Member since: 31 Mar 2010)
Wendytroll, this is very temporary and only on one carrier.
34. Bernoulli (Posts: 1460; Member since: 01 Sep 2012)
You're retarded, for one 5$x30days=150$ a month for Internet, why not just get it from t-mobile usa, 149.99$ for the device and 70$ gets you unlimited talk text and truly unlimited Web with no throttle. Or just use the z10 and enjoy never ending LTE
5. VTEChump (Posts: 11; 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.
6. wendygarett (unregistered)
They are carriers, what do you expect? Confusion everywhere...
7. VTEChump (Posts: 11; Member since: 19 Jul 2013)
Sorry, I guess it is illustrated in the first two tables on page 4. Still confusing.
11. Maxwell.R (Posts: 171; 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.
8. HASHTAG (unregistered)
So it's okay to be confused after reading this article, right? Because I am definitely confused.
10. VTEChump (Posts: 11; 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.
12. Maxwell.R (Posts: 171; 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.
14. VTEChump (Posts: 11; 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.
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.
40. Droid_X_Doug (Posts: 5903; 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.
43. _PHug_ (Posts: 381; Member since: 11 Oct 2011)
Can't find it on T-mo's web site easily but the plan is a partnership with Walmart.
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.
55. miles16852 (Posts: 208; Member since: 20 Oct 2011)
or google tmobile prepaid and you easily get,,,
30. Maxwell.R (Posts: 171; Member since: 20 Sep 2012)
The subsidy as it gets thrown around is a misnomer and not accurate.
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...
52. networkdood (Posts: 6290; Member since: 31 Mar 2010)
You are trolling and doing so incoherently.
16. Maxwell.R (Posts: 171; 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.
18. Whateverman (Posts: 3231; 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!
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.
26. Whateverman (Posts: 3231; Member since: 17 May 2009)
I hope you're right. That just makes sense. Thanks!
9. Cha7520 (Posts: 216; 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
41. Droid_X_Doug (Posts: 5903; 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?
44. _PHug_ (Posts: 381; Member since: 11 Oct 2011)
He said Straight Talk.
15. lolrus (Posts: 29; Member since: 18 May 2013)
You're missing some information. What a lot of writers seem to not know (I've been seeing this absent from a lot of articles lately) is that you can still get a subsidized phone on a two year contract through T-Mobile at a third party retailer.
I happen to work at such a retailer, and have the brochure for their "classic" plan in my hand (that is to say, the two year contract plan).
2GB plan, unlimited talk/text is $80 on a two year contract, versus $60 with the value plan. Interestingly, they kept their old ETF structure of $200 if you cancel in the first 18 months, $100 19-23 months, and $50 in the last thirty days.
As far as I know, at least Staples (where I work) and Best Buy have the classic plans still with T-Mobile. The low ETF of $200 even if you cancel three weeks after you sign the contract makes this info very relevant for this article.
The up-front cost of the phone is higher than it is with the value plan, but still competitive with the other carriers. For example, I have the GS3 for $50 and the GS4 for $200 on a two year contract with T-Mobile.
17. Maxwell.R (Posts: 171; Member since: 20 Sep 2012)
Indirect retailers also have a host of other terms and conditions when you buy from them and we simply cannot investigate every retail option when buying a device. Even with Staples (or Best Buy or wherever) locations, a carrier's core T&Cs remain.
21. lolrus (Posts: 29; Member since: 18 May 2013)
You're absolutely correct.
For example, Staples institutes a second ETF if you cancel within six months. This is because Staples up fronts the cost of the phone and gets paid back by the carrier for that signature after six months.
But, in the context of this article, where we are looking at upgrading after six months, if you cancel on the 181st day, you are off the hook for that second ETF and just pay the $200 to T-Mobile for cancelling. In which case you've paid $370 for a GS3 or $520 for a GS4 (phone+ETF+$20x6 months higher cost for plan), owned it for six months, and can probably get a large percentage back on ebay or craiglist for the phone because it's still relatively fresh.
Rinse and repeat. Seems pretty good to me, if you like to upgrade often.
48. Maxwell.R (Posts: 171; Member since: 20 Sep 2012)
That is not universal though, many indirect channels have their own ETFs tied to whatever carrier plans are in place.
20. Whateverman (Posts: 3231; Member since: 17 May 2009)
That is the case for existing customers, but new customers can't get a device through third party. Or at least that's what the said when I tried to get come to T Mobile through Best buy.
22. lolrus (Posts: 29; Member since: 18 May 2013)
I know for a fact that I can do new T-Mobile customers. Ported my buddy from Sprint to T-Mobile two weeks ago. On the actual unlimited classic plan, which is $90/month, subsidized GS4 and everything.
28. Whateverman (Posts: 3231; Member since: 17 May 2009)
Oh, wow! Best Buy could hav head 4 lines from me. Oh, well.
31. lolrus (Posts: 29; Member since: 18 May 2013)
I can't speak for their policies, they very well may not be able to do new lines on the classic plan.
I hate that no one knows that Staples sells phones because I think it's a pretty great place to buy (a bit biased, obviously). For reasons like that; we're a bit of an underdog so some of our policies are lax compared to Best Buy and the other well known authorized dealers.
Example: someone came in with a T-Mobile ad with the GS4 at $99 (down payment for value plan, of course) expecting a price match on classic. I was like "uhhh" and my manager was like "sure, whatever." So some lucky person got it for $99 subsidized on the two year contract. I used to work for Radio Shack and stuff like that would have never flown.
25. roscuthiii (Posts: 1852; Member since: 18 Jul 2010)
Didn't someone from Verizon already admit their Edge plan isn't a good deal??? Kind of all I need to know.
32. lolrus (Posts: 29; Member since: 18 May 2013)
The plan faced a lot of criticism and their official PR response was something along the lines of "yeah, it's not great for everyone but we're giving you more options- that's good, right?"
Which is good. Unless they get rid of the old two year contract structure that is (imo) way better for the customer, at least in Verizon's case.
I posted this a bit higher, but I think T-Mobile's new early upgrade plan is the only one of the three worth considering.
29. aliam223 (Posts: 2; Member since: 19 Jul 2013)
Sprint...You need to get your version of this plan!!!!!!!!!!!
35. ZeroCide (Posts: 697; Member since: 09 Jan 2013)
No they don't, These plans all seem to be a big scam that the consumers pay for and the carrier benifit greatly. The Att and Verizon seem to be the biggest scam while the t mobile one is slightly less.
Sprint is fine with the plans they have.
33. ibap (Posts: 705; Member since: 09 Sep 2009)
All of these schemes seem designed to confuse customers. "If you can't dazzle 'em with brilliance, baffle 'em with bullsh*t."
36. kcwirelessrep (Posts: 1; Member since: 19 Jul 2013)
I have been in wireless sales 7 years and find the plans slightly hard to follow and seem like your paying way to much for the device in most cases it would be cheaper to buy the device out right and trade in or sale your old device
37. dt3384 (Posts: 1; Member since: 19 Jul 2013)
one major misinterpretation of the T-mobile Jump program on these charts is that it should have been calculated with a value of $2 instead of $10 because the true breakdown of the bundled insurance package is $8(ins)+$2(jump) for total of $10 p/month. customers have the choice to opt-in to insurance only or the bundled jump feature, it is not a requirement by any means. Therefore it is not a fair assessment to calculate and additional $8 p/mo for Tmo because obviously the numbers will be inflated because then you would have to calculate the cost of vzw and att insurance cost into this equations. Other than this one misstep this was a very informative peace that breaks down cost very effective so kudos for that.
38. Maxwell.R (Posts: 171; Member since: 20 Sep 2012)
There is nothing in the fine print on T-Mobile's website to substantiate what you said. PHP is available as a standalone feature for $8/month, but that does not mean JUMP! is only $2/month. For JUMP!, the required out-of-pocket expense to the customer is $10/month.
39. Jyakotu (Posts: 823; Member since: 12 Dec 2008)
Honestly, at this point, if I were to leave my Sprint family plan, I would just go prepaid and be done with it. T-Mobile has changed the mobile landscape, which is fine, but pure prepaid just seems to be the simpliest method right now. Buy the phone full price, put in a SIM card, and you're good to go. And if you want to "upgrade", just sell the old phone to pay towards the new one. Simple. Easy. Done.
50. lolrus (Posts: 29; Member since: 18 May 2013)
A lot of prepaid plans don't have LTE though, which is a dealbreaker for me.
56. Jyakotu (Posts: 823; Member since: 12 Dec 2008)
AT&T now offers LTE with GoPhone. $60 for unlimited talk/text and 2GB of LTE data + $10 for additional data if you need it. Sounds good to me.
42. scsa852k (Posts: 300; Member since: 16 Oct 2012)
You only owe T-Mo the balance of the phone when you cancel.
"if you canceled at twelve months, your total out of pocket expense for any device is going to be $120 more than retail."
This statement is completely false.
45. Maxwell.R (Posts: 171; Member since: 20 Sep 2012)
It is completely true since the JUMP! plan carries a $10 per month equipment protection charge. That money is already out of pocket if the customer were to cancel 12 months into a 24 month payment plan. At that time, the remaining retail cost of the phone is due, and $10 per month in equipment protection will have already been paid as part of the JUMP! plan.
46. CSM201 (Posts: 3; Member since: 14 Sep 2012)
The article is incorrect about a "down payment" with AT&T. You pay nothing up front with AT&T Next, nothing down. 1st payment is applied to the following bill
53. networkdood (Posts: 6290; Member since: 31 Mar 2010)
Bottom line is monthly prices. Take four smartphone lines for a family. T-Mobile has them for 100.00, 500MB data each, talk and text unl. Add 10.00 per line for 2GB each, giving you 140.00/mnth. 180.00/month for all lines unl data, but, I am sure not everyone needs the highest plan. ATT has two price options: Family talk and Family shared data. 4 smart phones with 700 min share talk and unl text with 300 mb data each is 100+30+80=210.00. 3GB each would cost 250.00. Option 2 family data share is 6GB at 230.00 for 4 lines. 90 for data and 140.00 for the phones, talk and text unl. Version share plan is 220.00 for 4GB and 230.00 for 6 GB. T mobile looks to be the best, but the question remains for each person - coverage.
57. rick0204 (Posts: 1; Member since: 24 Jul 2013)
I have been with Verizon for years and have a very old plan that works for me. The plan is $60.00 per month. I needed a new phone this past weekend so I called Verizon. The rep said a discounted phone with a 2 year contract would result in my losing my old plan and I would need the new Share Everything Plan for $100 or so. I said no and went to a Tmobile store and started the Jump program with a new Samsung Galaxy 4. The total price for me on the first day was $204.00. This included the down payment, the Sim card and payment of the taxes on the full retail proce of the phone. I thought this was a great idea in the store but when I arrived home I started doing all kinds of calculations and was very uncomfortable with the Jump program. I called Verizon back and was told that there is a "Win Back" department that is only open Mon-Fri. I called on Monday and the rep said I can have my old $60.00 plan back if I agree to a 2 year contract with the Samsung Galaxy 4. The total price would be $217.49 for the phone and tax. I also added the $8.00 insurance to get the plan closer to the Jump bundle plan.
If I am doing the calculations correctly here is the cost of the new phone after one year on both plans:
1. Tmobile Jump - $564.00. This includes the $204.00 for the new phone, $60.00 x 12 = $360.00 (phone charge + jump charge).
2. Verizon - $543.00. This includes the $217.49 for the phone, $96.00 insurance and $230.00 ETF.
In both cases I can get another new phone and start over. With Tmobile it will cost me $204.00 if the down payment is the same and with Verizon it will cost me $217.49 if the discounted phone is the same price.
My new Verizon Samsung Galaxy 4 arrived today and i am porting my number back and returning the Tmobile device tomorrow. I will only have to pay for 5 days of service with Tmobile.
In doing my research I also found out the the deductible with the Tmobile replacement part of Jump is $175.00. With Verizon the deductible for a replacement device is $99.00. This is not an upgrade but a replacement if your device is lost, stolen or damaged.
I think the Tmobile Jump program will only work if you upgrade every 6 months no matter what. If you do then you get a new phone every 6 months and the cost for each new phone will be $384.00. I think Tmobile is hoping that the customers will be lazy and not upgrade every 6 months.
I was also uncomfortable paying sales tax on the full retail price of the phone at Tmobile on the first day. If I upgrade after 6 months do i get a refund of the sales tax on the remaining balance? Probably not and I would be charged sales tax on the full retail price of the upgraded device also.
I hope my calculations are correct.