The wireless carriers are not your friend. Their goal is to hook you so they don't have to worry about losing you to their competition. One of my colleagues wrote an interesting article explaining the best and worst ways of doing business with your wireless carrier. Here are my thoughts on the four common ways to purchase SmartPhones...
The Lease Model
I could not agree more that the leasing option is like a wolf in sheep's clothing. The only good thing about leasing is there is absolutely no up front costs. That is attractive for large companies that can justify monthly charges, but not large equipment expenditures. These "lease" deals also make it easy to move into newer models. The carriers love these deals because they are binding and deliver a high average revenue per user (ARPU). I'm an advocate of Unified Communications as a Service but not when it comes to SmartPhones. The two biggest problems with leasing are the following. You have absolutely nothing to show after 24 months of service. What the carriers don't disclose is that the resale value of a 2 year old iPhone can be as much as $400. If you had to replace a lost or stolen iPhone 7, and happen to have an unused iPhone 6s laying around, forget it! The carriers will make you replace the device with the same exact model or better. That means the small savings you get from leasing versus buying is given back because you really need insurance to avoid having to pay full retail for a replacement device. Anyone who has ever dealt with insurance companies, $175 deductibles, and getting refurbished replacement models knows all of this. That means the worse deals out there are AT&T's "Next" and Verizon's " EDGE" Early Upgrade/Lease programs.
The Two Year Contract
Today, only Sprint and Verizon still offer 2 year contracts. While they still do offer a $450 up front subsidy, unless you do an upgrade as soon as eligible (month 25), you're paying an equipment subsidy on your two year old+ phone. These carriers generally bump up the monthly rate an extra $20 to offset the $450 subsidy. They also sneakily charge activation fees which most people don't factor in.
While easy to manage, these plans often don't offer the "meat and potatoes" of the postpaid plans. I just had a buddy who had a prepaid T-Mobile plan get hammered for Mexico roaming. Apparently only post paid plans get that FREE Mexico, along with Mobile Hotspots and other goodies.
Zero interest Financing
You may still be on the hook for 24 months but with all carriers, as soon as you pay off the device, the carrier will unlock it and let you take it to another carrier. While all four major carriers offer this model, they are not the same. Only T-Mobile allows their users to accelerate the payment scheduling by increasing payments to shorten the term. The other carriers require you to make the monthly minimum payment or pay it off in full. If you choose the right carrier, this is not a bad way to go.
Buying Your Phone Outright and or Independent of your Wireless Carrier
If you can afford to, this is the smartest way to buy a new device. That's because you can move from carrier to carrier and they know it. This gives subscribers the ability to price shop plans and change any time another carrier comes out with a better deal. No wonder the best option for consumers happens to be the worst for the carriers. Why, you ask? Because they now have to put up, or shut up. If their service is less than great, or their rates become higher than their competitors, switching has never been so easy. The carriers don't want you to know that switching does not even require wiping or resetting the device. Simply replace the SIM card and all of the content remains on the device except for the carrier settings. You can thank APPLE for getting tired of building different models for different markets. Now, one size fits all. Apple smartly builds in all of the world frequencies so their devices support all wireless carriers.
To learn how to get the absolute best deal, Visit our Robin Hood page.
Joel Saltzman has over twenty years of wireless industry experience. He is currently CEO and Chief Wireless Analyst for Dr Wireless.