T-Mobile, AT&T, Verizon set customers 'free' (+video)

T-Mobile, AT&T, and Verizon give clients a new option to trade up faster – at a price.

By , Staff writer

T-Mobile, AT&T, and Verizon have shaken up their contracts. Hot, new smart phones come out every year, but for a long time, phone companies have pushed customers into a two-year cycle. Now, each carrier has introduced plans that will allow subscribers to trade in their old phones more frequently.

You will no longer need to skip a smart-phone generation or tap your foot until your two years are up. In some cases, these new plans – called T-Mobile Jump, AT&T Next, and Verizon Edge – will allow customers to leapfrog from one phone to another multiple times a year.

The trend kicked off with T-Mobile, the smallest of the major carriers. In a push to stay competitive, the company declared itself the "Uncarrier." It set up new ways for customers to buy out their contracts, and designed Jump to attract restless gadget lovers. For an extra $10 a month, T-Mobile Jump allows subscribers to trade in their phones as often as twice a year.

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AT&T quickly followed suit. Under its Next plan, new phones cost nothing upfront. Instead, customers pay off the phone in installments over 20 months. After one year, subscribers can trade in their old phone, wipe away any remaining balance, and start again with a brand-new device.

Verizon jumped in with its own plan. Similar to AT&T's Next, Edge does away with down payments. The cost of a phone is divided up over two years. After six months, customers may trade in their phone for a newer model, as long as they pay off at least half of the price of the old phone.

In many ways, Jump, Next, and Edge set customers free. People can ditch clunkers, stay on top of Apple's and Samsung's annual release schedules, or try out competing operating systems – such as Windows Phone and BlackBerry 10 – without worrying that they'll be stuck with them for two years.

There's an expensive downside to these plans, however.

Phones cost a lot more than their sticker prices suggest. A new iPhone 5S with 16 gigabytes of storage costs $199. But that's a subsidized price, one only available if you agree to a two-year contract. The same iPhone without a contract costs more than triple the advertised price: $649.

Phone companies assume that fewer people will buy smart phones if they have to plop down the full price upfront. Instead, carriers have hidden the full cost by charging customers an easy-to-swallow price – in this case $199 – and recouping the difference through monthly fees over the life of the two-year contract.

But now that customers have the option to upgrade phones after only six months, Jump, Next, and Edge cost quite a bit more than the old business model.

Here's how: With a standard two-year contract from AT&T (still available for those who don't mind waiting two years), you will pay about $200 for a new smart phone and approximately $90 a month in service charges. That means an average customer pays about $2,360 over the course of two years.

With AT&T Next, you pay the same $90 a month in service charges, but instead of the $200 down payment, you pay a share of the unsubsidized cost of the phone (an extra $32.50 per month). By the end of two years and one phone upgrade, a Next customer should expect to pay about $2,940.

T-Mobile's plans cost less. A standard two-year contract goes for about $2,070. A one-year upgrade with Jump comes out to $2,460. Upgrading every six months adds up to $2,760.

Plus, at the end of a standard two-year contract, the old phone is yours to sell or hand down to a family member. But each of these new programs requires people to trade in their former phone.

Gadget mavens will need to ask themselves how much they are willing to spend to stay on the cutting edge.

For more on how technology intersects daily life, follow Chris on Twitter @venturenaut.

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