Think through your phone preferences with early-upgrade plans

  • Pin It
Cell phone unlocking

President Obama signed a bill that once again makes it legal for consumers to unlock their cell phones. (Spencer Platt / Getty Images / January 14, 2013)

Smart consumers know that when a sales pitch involves convoluted math, chances are it's not a good deal. That alone is a warning sign against early upgrade plans being sold by the four major mobile phone carriers during the past year.

But not so fast.

While many reviews are lukewarm on the value of early upgrade plans for people who prefer the latest handsets, the plans can be a good deal for the opposite people they're aimed at — customers who hold on to their phones a long time, experts say.

Early upgrade plans are becoming popular as enrollment nationwide more than quadrupled from September through March, according to a report from market research firm NPD.

As if it wasn't hard enough understanding pricing of cellphone plans, starting a year ago T-Mobile, Verizon, AT&T and Sprint began rolling out early upgrade cellphone plans aimed at gadget lovers who could get their hands on the newest smartphone earlier — annually or even sooner.

Under traditional plans, customers had to wait about two years before they were eligible for a new phone at a discounted price.

And that's where the convoluted math has always started — with how most U.S. carriers charge their customers. Instead of charging for the phone and service separately, they bake into wireless service plans part of the price of the phones.

That's why savvy consumers know it's generally a bad idea to buy and hold a phone for more than two years if you're on a traditional plan.

You might as well upgrade when you're eligible. Otherwise, you'll continue to pay a monthly service rate that includes a phone subsidy for a device that has long been paid off.

In other words, your bill doesn't go down when the phone is paid for.

That changed with the introduction of early upgrade plans, which essentially separate the cost of the phone — allowing you to pay it off in installments over time, interest free — while reducing your monthly service plan price because you didn't pay an artificially low price for the phone.

So, ignore the names of the "upgrade" plans but don't ignore the plans, said Michael Gikas, a smartphone expert with Consumer Reports who has examined the plans.

"The early upgrade plans are a great way to save money if you don't upgrade. That's the bottom line," Gikas said. "Do exactly what they don't want you to do, and you'll save."

Logan Abbott, president of wireless phone comparison site Wirefly, sees it the same way: Upgrade plans are good deals for people who don't upgrade frequently. "If they're keeping the phone and like the phone and don't need to upgrade all the time, that's when it makes the most sense," he said.

That's especially true for customers on no-contract plans such as the AT&T Mobile Share Value plan. "If you're going with a no-contract plan, I would definitely do it," Abbott said. "The reason people didn't use no-contract plans is, they had to buy the phone upfront for, like, $700. The early upgrade plan has kind of eliminated that."

Are early upgrade plans a smart spending choice for you the next time you're switching carriers or ready for a new handset? We're not going to dive into the details of all the major carriers' offerings. But here are a few key points to consider as you do your own convoluted math.

Smartphones are really good. Ironically, major carriers introduced the marketing concept of early upgrade plans at a time when they're least needed.

"They're too little, too late," Gikas said. "There's less reason to upgrade early than ever before … early upgrade programs would have been appreciated five years ago."

That's because smartphones have matured, and most of them are already very good, with few significant missing features. They have great screens, fast processors, good reception, and decent cameras and battery life. They will satisfy most people for about three years, Gikas said.

Instead of improvement leaps, feature upgrades in phones "are more like baby steps now," Gikas said. "The most compelling features are already in them. Now, we're looking at tweaks."

  • Pin It