iPhone Life magazine

AT&T's Latest Pricing Forces iPhone Buyers to Decide How and When to Pay for Devices

I use my daughters' upgrades at AT&T to keep my iPhone up-to-date. They get the previous generation. My youngest daughter, just graduating from college, was still on an iPhone 4. I went to the AT&T store for the upgrade, but we didn’t have one. No, I didn’t look online first, I just assumed as many do, that an upgrade was waiting somewhere.

Oh, and one other thing. We had recently switched to the AT&T Family Share plan, which discounts multiple lines with unlimited text and talk along with a pool of data. We opted for 10GB shared.

When I arrived at the AT&T store they quickly looked up the account and informed me we didn’t have an upgrade available among the existing accounts. Then it got a bit weird, and ultimately wrong, but still weird.

See, smartphone users have been well taken care of by deals between manufacturers and cellular carriers. A $199 16GB iPhone 5s isn’t really $199, that is a subsidised price (it is really $649.99, which, yes, is more than an iPad with the same memory). The subsidized phone requires a 2-year commitment. The rest of the phone’s price was included in what you thought rightly were rather high rates for something invisible, even if the invisible thing include talk, text, and data. Sure there is infrastructure and staff, but in reality, the consumer’s perception is that they are paying for a rather amorphous, invisible service.

The sales person started telling me all of this, with the caveat that given the new plan, the Family Share Plan, I was going to have to pay the full retail price (or their financed price with the AT&T Next program—yes, curiouser and curiouser and more complex). That is because the burden of phone pricing was moving to the customer. These lower service rates reflect actual service costs more closely (with a good bit of margin built in), so if you work out all the math, and who really is going to do that (well, that one girl in math class, but…), you end up finding it less expensive to buy a $650 phone and pay the lower rate than to get a higher-priced plan and then pay over time. And if you want to pay over time, you can with the Next plan, which works the price of the phone in the bill but keeps your rates lower. Want a $199 iPhone whatever, with a two-year commitment, sure, but AT&T will charge fees ($40 upgrade fee, or a $40 activation fee for a new phone) and don’t expect any discounts on the rate plan. The $15 dollar extra phone becomes a $40 a month extra phone. This extra fee only lasts for the period it takes to pay off the new phone (typically 24 months). Keep that phone and the rate reverts to the $15 a month fee (though note, none of these plans have been in place for 24 months).

The bottom line: you need to think about the life-time costs of your phone. you thought you were getting a deal on your phone, but eventually, if you have a $650 iPhone 5s, you will pay for the phone—that’s what termination fees are partly about. They gave you a deal on your phone. When you don’t want that phone or your current service and want to switch carriers, you have to pay off the phone that was figured into the payments.

Don’t want to spend the cash to make the transaction easy on the front-end, then you pay over time, and at least at the front end, you end up with some mental anguish as you attempt to figure out the convoluted mathematics of cellular phonery.

So here is what I learned. As a consumer service, if you don’t try to understand the details, the AT&T cellular business will give you service and set you up with a phone. Once you start trying to reconcile old programs with new ones, and once you try to compare various flavors of new plans, you might as well be in the backroom of a car dealership talking to “the guy” about your automobile loan. Because ultimately that is how you have to think about your phone. It’s a buy or lease and they have several programs that will get you into the phone you want for a price you are willing to pay. Just like cars, it’s about the upfront and the monthly. Don’t put as much down (as in buy your phone), and you end up with higher monthly payments. So next time you upgrade, think about your budget, not their programs, because that is ultimately what will really matter to you. The system is gamed and you can’t win, so don’t spend too much time trying.

(BTW, I eventually passed down my iPhone 5 to my daughter and procured an iPhone 5s for myself. This time I used my upgrade for one of the kids, sort of. The big question now is how I’m going to pay for the iPhone 6 when it arrives this fall).

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Daniel Rasmus's picture

Daniel W. Rasmus, the author of Listening to the Future and Management by Design, is a strategist, industry analyst, and business correspondent for iPhone Life magazine. Prior to starting his own consulting practice, Rasmus was the Director of Business Insights at Microsoft Corporation, where he helped the company envision how people will work in the future.

Before joining Microsoft, Rasmus was Research Vice President at the Giga Information Group and Forrester Research Inc. Rasmus also is an internationally recognized speaker. He blogs regularly for Fast Company and on his own blog, Your Future in Context. His education-related work can be found at Learning Reimagined.