Say goodbye to subsidized smartphones

The regular upgrade cycle by smartphone makers has finally brought an end to the era of subsidized smartphone purchases. A new plan1 announced by AT&T let's customers pay off their new smartphone purchase over an extended period, instead of bearing the brunt of the cost up front.

AT&T customers can choose the monthly installment plan that works for them - either AT&T NextSM 12 (a 20-month installment plan), AT&T Next 18 (a 24-month installment plan) or the new AT&T Next 24 (a 30-month installment plan). AT&T Next is available for new, qualified AT&T customers or existing customers who are upgrade eligible.

To a customer like me, this may make sense. I don't upgrade my smartphone with every new version so I would get to keep a lower cost data plan, the cost of the phone is spread out, and cost of the plan is interest free. Happy customer. After digging through the plan in more detail I saw two issues. One, the plan's title is a little deceiving. Two, the cost differences weren't truly laid out for a consumer.

First off, the way AT&T names these plans is a little deceiving. The name says one thing, but means another:

AT&T Next Plan Plan Period
AT&T Next 12 20
AT&T Next 18 24
AT&T Next 24 30

The title describes not how long the plan's term is, but how soon I can upgrade again. So even on AT&T's fastest Next plan is called 'AT&T Next 12', the plan actually has a 20 month payment term plan. Now in 12 months I could upgrade again to the next latest and greatest. So how does AT&T plan to make up for these costs? You don't get to keep the older device after you switch up.

Read the fine print:

Requires payment of 12 installments on 20-month agreement or 18 on 24-month agreement, account in good standing, trade-in of your financed device in good condition, and purchase of new eligible device with qualifying wireless service. After upgrade, unbilled installments are waived.

The second part of the plan, and what I think borders on false advertising, is how AT&T is comparing the plans from a subsidized smartphone purchase to ones made on a AT&T Next plan.2 The graph below is from AT&T comparing the purchase of a subsidized iPhone 6 at $199 with a 2 year contract over the cost of the 1st year AT&T Next purchase of an iPhone at full retail price of $650.

Hmm... Is $390 really less than $325.08? Is $1105.08 really comparable to $1170?

Here's how the costs actually stack up after 1 year.

Great, but AT&T forgot one detail. On the Next 12 and Next 18 plans, a customer is still paying for their phone after 12 months. So by the end of the contract term of 2 years, assuming they didn't upgrade again, the actuals costs are:

So over 2 years, the subsidized smartphone will actually be cheaper.

Now I'm just picking on AT&T because they made the announcement today. But I'm betting Verizon and other mobile carriers will be coming out with similar deals now that the holiday season is ramping up.

Just be a smart shopper for your new gadgets this holiday.