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Cellular Contracts vs. Installments

I haven’t dedicated much time on this blog to my day job, as it were, so I thought I might try to explain something that seems to confuse a lot of the customers I interact with at the AT&T Authorized Retailer store where I work.  That subject is AT&T Next (or Verizon Edge, or T-Mobile Jump, or Spring 1UP — whatever), which is where you buy a smartphone at full retail via installment payments.

At first blush, many people wonder why the hell they would want to buy a phone for, say, $649.99 instead of $199.99 on a traditional 2-year contract.  Well, there’s a dirty little secret regarding contracts.  You’re usually paying as much or more anyway, and they offer no flexibility whatsoever.

2-Year Contracts: A Primer

Contracts began as a way to entice American wireless customers to buy into what was once a product with very little use.  I say that because coverage was thin across most of the U.S. for many years.  Now, let’s set the record straight: no phone, even crummy basic flip phones, have ever been so cheap to manufacture that a carrier could give it away.  Even back in the analog days (1G!), that was high technology for the time.  But the carriers understood that few people would be willing to spend hundreds of dollars on devices that only worked in some places.  So those carriers dangled free or cheap phones on contract but priced the rate plans high enough to make that subsidized money back.  Truth be told, there was always a misnomer about how carriers wanted to get you to get new equipment so they could lock you in.  The best customer was the one who didn’t need a subsidy for a new phone but kept paying a rate like he or she had one anyway.  The only time a carrier would jump at putting you into a contract with no reservations is back when it was okay to extend a contract just for making a plan change.  (Thankfully, those days are mostly gone.)

An Example of a 2-Year Contract

Rate plans across the industry have been a state of flux recently, but before shared data plans came about, plans were quite stable.  Here’s an example of a common plan for a single line I would have sold back then:

Nation 450: four-hundred and fifty anytime minutes, 5000 night and weekend minutes – $39.99

Messaging Unlimited: unlimited messaging – $19.99

DataPro 3GB: three gigabytes of data – $30.00

Total – $89.99/mo + tax

If you consented to a 2-year contract, you would pay whatever the subsidized price of the phone was plus a one-time upgrade or activation fee of $40.  We’ll use an iPhone 5s 16GB, since that was the most common phone I sold before all this upheaval happened.  That phone would cost you $199.99 out of pocket (instead of $649.99 at full retail), and that upgrade or activation fee would be applied to the next bill.  For the sake of argument, let’s call that purchase $239.99.  (My state doesn’t have sales tax, so I’m ignoring that consideration on phone price in these examples.)

After two years passed, if you decided to keep your phone because it worked perfectly well and you didn’t want to lock yourself into another contract, your plan price would stay exactly the same: $89.99/mo + tax.  Okay, right?

Yes.  But that’s a bad thing.

You didn’t see it in your bill, but you were paying back your carrier for that $450 subsidy on the iPhone.  Your wireless company hid it in the cost in the overall price of your plan.  This is why these companies loved it when you kept your phone past the two-years, since it was essentially free money.

An Example of AT&T Next

These days, the carriers have new plans that are specifically built to enumerate the cost of the phone subsidy.  Here’s an example of a common plan I would put someone on today, using AT&T Next:

Mobile Share Value 3GB: three gigabytes of data with rollover, unlimited calling and messaging – $40.00

Line access fee: per-line price for each smartphone not in contract – $25.00

Total – $65.00/mo + tax

Now what happens if you want the newest iPhone and you put it on Next installments? The 24-month installment price for a $649.99 phone (i.e.: $649.99 ÷ 24) ends up being $27.09 per month.  Add that to the $65 plan, and that equals $92.09.  The first thing you might notice is that this price is $2.10 more expensive per month than the old Nation 450 price of $89.99.  Over two years, that would add up to be $50.40.

Remember, however, that with AT&T Next, you are not paying an upfront, subsidized price of $239.99 ($199.99 plus the $40 upgrade or activation fee).  So, you would save $189.59 over the old plan with the 2-year contract ($239.99 – $50.40).

You can extrapolate these numbers with multiple lines.  The pendulum swings further in the favor of the customer who has a 10GB or greater Mobile Share Plan, since the line access fee is $15.00 (compared to $25, as exampled above).

The Future

Not everyone qualifies for installments, credit-wise.  As such, there are still some customers who need to either agree to 2-year contracts, buy new phones at full retail all at once, or acquire used phones instead.  But I think this will change sometime in the future: AT&T recently changed the verbiage on its installment agreements from “there is no downpayment” to “if you have a downpayment”.  Perhaps customers with less than optimal credit will be able to still enter into AT&T Next but need to put some portion of the phone cost down (which would lower the monthly payments anyway).  I can envision a scenario where 2-year contracts disappear altogether after this happens.

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Written by Michael

14 May 2015 at 11:44 pm

BlackBerry Tour 9630

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I didn’t really need to change phones.  My BlackBerry Curve 8330 was a very good phone, with excellent battery life (especially for a smartphone) and was able to perform most of the functions I wanted — reasonably fast web access, easy-to-use messaging, instant messaging, and so on.  But I must admit, when the BlackBerry Tour 9630 came out, I was green with envy.

Many have compared the Tour to being much like a cross between the newest BlackBerry Curve 8900 to come out for AT&T, as well as the older but much heralded BlackBerry Bold 9000.  The body style of the former, the keyboard of the latter.  The best of both worlds, one might say.

For Alltel, which has neither the Curve 8900 nor the Bold, I saw the Tour as a beefier, more impressive version of the phone I already owned and loved, the Curve 8330.

The Tour has a 3.2MP camera with autofocus, compared to my old Curve’s 2.0MP camera sans autofocus, as well as the 3.1Mbps EVDO rev.A antenna vs. the 2.4Mbps EVDO rev.0 antenna that’s in the Curve.  (This translates to modestly faster browsing, but much, much faster uploading — up to ten times faster.  This is especially nice considering the proportionally larger photos achieved with a 3.2MP camera vs. the older 2.0MP camera found in the rev.0 Curve.)

The screen is also immeasurably nicer.  The Tour has a beautiful, bright screen at 480×360 compared to the Curve’s 320×240.  The result is a much more refined, sharper looking image with greater contrast and better backlighting, making the Tour considerably easier to use in sunlight.  (Further, the Curve has a sort of double screen, with the LCD below a higher-positioned piece of plastic, which gives it the unfortunate appearance of a concave display found in older televisions.  The Tour’s screen is perfectly flat and without another piece of plastic to obfuscate the image, which makes it look a heck of a lot better.  The only caveat is that I think the Curve’s internal screen was well protected by that extra shell, whereas the Tour’s screen is right there, ready to take the brunt of any impact we all hope never happens.)

Another interesting note is that the Tour contains a SIM card slot for global roaming.  This is a nice addition, though I’m unlikely to use it.  What’s more important to me, however, is the fact that the SD card slot is directly accessible beneath the battery door, whereas the Curve’s SD card slot was positioned beneath the battery.  As any BlackBerry owner knows, a battery pull is fairly painful, given how long the device takes starting up cold like that.  That’s not a problem on the Tour.

Lastly, the Curve 8330 runs OS 4.5, compared to the Tour’s 4.7.  While a couple of “dot” releases seems inconsequential, the UI tweaks and facelift are pretty significant.  The newer interface is a lot sleeker, making great use of the Tour’s ability to display blacks so well, making it very elegant and professional-looking.  The 4.5 OS looks cartoonish when placed head-to-head with 4.7.  Also, there have been many sensible changes, including renaming a few items in the OS to make them easier to find, as well as adding the super-useful app switching ability to the BlackBerry menu key.  (Simply hold the key down for a moment, and a row of all your open applications will appear, superimposed over whatever you have opened.  Much, much easier than the old method.)*

Is this critical?  Probably not.  But the same could be said of all the refinements I’ve outlined so far.  So while the Curve was still a perfectly great phone, doing almost everything I needed, I still upgraded to the Tour — because I’m a bit of a gadget hound, and I can’t help myself.  What can I say?

In any case, I’m of the personal opinion that the BlackBerry Tour is the best CDMA phone that RIM has produced, above the Storm even.  I haven’t used the new Storm2, which I’m sure is beautiful.  But truth be told, if I were going to buy a touchscreen phone, it would be Apple’s iPhone (which will probably come true at some point down the line.  I’m not currently in a position to do so because AT&T is not present in Montana, and I’m a bit nervous about GSM carrier’s 3G coverage).  There are handsets on the horizon that look exciting (including models that abandon the trackball in favor of a trackpad to eliminate the moving part), but those look targeted towards GSM carriers for the time being.  RIM can hardly be bothered to produce more than a couple CDMA phones per year, so we’ve reached our quota for now.

Now, I’ve quoted a lot of improved features and stats, but how do I feel about it in the context of simply being my everyday phone?  Well, I like it a lot.  I feel the same way I did about this new phone as I did when I first bought the Curve — it’s a fun toy, and I find myself tinkering with it all the time.  Battery life seems comparable, audio quality maybe slightly better, but overall, it’s a super phone.  Anyone looking at buying a BlackBerry should consider this one if that person is with a CDMA provider (Verizon, Sprint, or Alltel) — otherwise, I would look at the upcoming BlackBerry Bold 9700, which seems to have many of the same great features as the Tour, except with WiFi added.  (CDMA smartphones with added WiFi seem to be rare, with HTC and Palm contributing a couple of exceptions.)

The Tour is obviously more expensive than the older Curve ($150 compared to $50, after rebate with Alltel), but my strong feeling is that if you’re going to go big, go as big as you can.  Let’s face it, the BlackBerry is a bit of a status item anyway, so dazzle away with the extra beauty and added functionality.

*I heard word that new 5.0 OS will actually work on both the Tour and older Curve, which will eventually render my point about the UI moot.  I’m curious to see whether the Curve’s older processor will play well with the added visual effects.

UPDATE (November 4, 2009):

I purchased the BlackBerry Tour Charging Pod to go with this new phone.  Aside from being slightly more convenient than fiddling around with the micro-USB cable for charging, it does indeed appear that the pod charges much faster than going in through the normal charging port.  (The pod makes use of the contacts on the back of the phone for more power transfer.)  For $10, it’s not a bad investment.

Written by Michael

1 November 2009 at 12:47 am