I admit it. I'm an Apple fanboi. Our house is outfitted with a lot of Apple stuff. I have Apple TVs upstairs and downstairs, a Time Capsule (which is probably the worst Apple product I've purchased, 3 MacBooks (2 Pros and 1 Air) and iPhones and iPods. You've likely seen my Apple Watch posts (I'm on my second one) so yeah... I fit squarely into FanBoi territory. I usually skip generations of phones, and have done fairly well selling 2 generation old phones for close to the subsidized pricing of a new one. But, the second year is always somewhat painful, as Apple's planned obsolesce usually renders a 2 generation old phone painfully slow on the modern iOS, so I've been wanting to upgrade earlier.
But, the only way to do this historically was to pay the full, off contract price for the phone or buy one used. Usually this meant skipping the launch (which isn't a big deal) but dealing with Ebay's fees or Craigslist's flakey people on a buy and a sell transaction every year was not very appealing. Apple realized this and has created a plan for the true fanboi.
Let's look at the historical situation first:
AT&T and Verizon have sliding scales for their early termination fees (ETF). They both start at $350. AT&T's reduces by $10 per month you've had the phone, Verizon's reduces by $10 after month 8-18, $20 for 19-23 and $60 in the final month. This means, if you want to get out of your phone, into a new one at the 1 year mark, you either pay the full contract price every other year, or you switch back and forth and pay an ETF. This wasn't bad with entry level phones - you come in at $199 per on contract, and either pay an ETF or full contract of $649. (and sales tax on the full value of the phone) If you switch, usually an activation fee of $40-$50 as well. I'm going to look only at AT&T and Verizon since they are the only two carriers in Silicon Valley that have good enough networks for us travelling sales people. (T-Mobile and Sprint have much cheaper plans, if you need to have an iPhone and want to save money and don't make many voice calls, that might be the way to go)
This was all good and well when a 16GB phone was enough - it no longer is. I can easily fill that with just music, apps and a few pictures, I was constantly deleting stuff off my iPhone 5 16GB. Apple dropped the 32GB - instead of making it standard, they still ship a 16GB but a lot of people pay the huge upgrade fee to go to 64 GB of storage. This makes things a little murkier, especially given the resale is not as strong on the larger devices. Now, let's say you want Applecare. Used to be $99, but the 6S is now $129, for 2 years of coverage. It is a nice to have but I've found doesn't really add to resale much at all.
Let's say you want to upgrade at a year, to the mid-range 64GB device. At $299 + tax on $749 or 8.75% = ($749* .0875) = $65.54 and either an ETF of $350 - 12x$10 (AT&T) or 4X$10 (Verizon) or $230 or $310. The ETF game is problematic because you're bouncing from carrier to carrier and you end up having to pay an activation fee each time or $40-$50 plus, it usually takes a few hours of agony to get the phones working completely. (last time I switched, iMessage didn't work for two weeks, until I found this crazy Russian Youtube video. no joke.) It is $729.08 + Applecare x2 + $230 or $310 - $450 (selling the phone) or $31.96 /month on AT&T and $35.30 on Verizon.
Or you can pay full contract for the 2nd phone, so $299 + tax + $749 + tax minus sales of both phones. Right now, an iPhone 6 64GB is selling for about $450-$500, but the market is flooded with them since so many people are upgrading. This means a net cost of $299 + $65.54 +129 + $749 + $65.54 +$129 = $1437.08. Figure selling the phone at the 1 year mark gives you $450 back or a total of $987.08 / 24 months or $41.13 a month. (technically at 24 months you'd be ready for another upgrade cycle but that is another sale and another spend, this time possibly subsidized so we'll leave that alone for the time being.)
Apple's plan works out to be: $749 + $129 + $65.54 in tax = $943.53. The upgrade plan means you pay $102.12 up front ($65.54 tax + $36.58) and 23 additional payments of $36.58. Simple loan at 0% interest. The twist is that at month 13, you become eligible for the new phone. This means you hand them your iPhone 6S and you get the iPhone 7 at Month 13, or a total of $504.50, or amortized over the 12 months, $42.04 per month. They are essentially guaranteeing your phone is worth $439.03. (vs the $450 or so an iPhone 6 64GB is worth now)
This means you're paying $0.91 or $21.84 to be:
- Out of contract
- Not having to deal with Craigslist / eBay / etc (current trade in prices on Amazon/similar services is dismal at best, at around $300)
This means you can switch mobile carriers at will, whenever you want to - more importantly, the carriers have to work to keep you happy since you are no longer tied to them. I think overall, for the free market, this is a good thing as it will drive the carriers to be better. I hope.
Obviously this is probably the most expensive way own a smartphone. Both carriers have financial options, and Verizon's and AT&T's give you a substantial discount on the price of the phone through service credits. But, this doesn't work if you want the new phone every 12 months - AT&T's allows you up to upgrade at 18 months with phone turn in, but that's a bad deal compared to selling on your own. (basically your phone is only worth 6 months of payments, or far less than the street value). Plus you're 6 months off the upgrade cycle, which means you skip a phone every 2 years. Verizon's does something similar except at 20 months.
If you want to own Apple's newest and greatest, their upgrade program is not a bad way to go about it, IF you buy Applecare and IF you can't get top dollar for your phone. For a lot of people, especially if you never buy Applecare, it's not the cheapest way, but certainly the easiest. It also gives you leverage with the carriers to retain you, which is I think the biggest benefit - but only if a lot of people do it. Hope that helps make your decision!
Silicon Valley Dad, who loves cars, cooking, clothes and cameras