U.S. Wireless Trade-in Plans May Not Be All They Seem

The American wireless carriers have been introducing trade-in plans of late that are being looked at as the “new rage” stateside in offering customers a better deal. But are they all they’re cracked up to be? Further research would indicate that the answer is a resounding “no.”

With Verizon, the latest to join the foray, customers can trade in a smartphone for a new model after six months. But the old phone needs to be at least 50% paid off before doing so. Do the math, and it’s easy to see that you can’t pay off 50% of the purchase price of a phone after six months unless you’re paying double what you’d normally be paying for that time period; perhaps even more.

Think of it this way: you buy a phone on a two-year contract, it means the outright purchase price of the phone is going to be subsidized over those 24 months. Let’s say the phone costs $700, but you pay $400 on a two-year term. This means you “owe” $16.67 each month to make up the $300 difference. Should you decide to switch to a new device after six months, you’ve only effectively paid $100.02 of what you owe for the phone. This means you still owe another $200 to make up the difference. Half the price of the phone would be $350, which means you’d actually have to pay another $250 for the phone to make that 50% to upgrade “early.” This means you’ve actually overpaid for the phone when all is said and done, just so you could get rid of it early. AND you don’t get to keep it. Huh? Unless I’m missing something here, it doesn’t make much sense.

With Verizon’s program, called Edge, you would get a device like an iPhone 5, for nothing outright. But the monthly cost for the phone would be based on a full price of the device, not the subsidized, two-year contract price. That means you’re paying toward the $600 phone price, not the $200 two-year contract price. Bottom line: in the end, you’re still paying more, and don’t get to re-sell the device when you’re done since you don’t really own it.

AT&T’s similar plan is called Next. With that one, you don’t pay any upfront fee for the phone either, but again, the cost of the device (the full cost, that is) is spread out over 20 equal monthly payments. So with an iPhone 5, for example, that would be over $30 tacked on to each monthly service bill to make up the $600 purchase price. If you decide to upgrade after a year, you can, and the monthly additional payments will cease after you hand in the old device. But you’ve already paid about $360 toward a phone that, if you want to upgrade, you don’t get to keep. If you bought the iPhone 5 from AT&T on a two-year contract, it would cost you $200. The monthly service plan fees would not be any different, and the device would be yours to keep once you’re ready for a new one. Which means you’ve essentially paid another $160 for the right to get a new phone. Seems pretty steep if you ask me.

Consider that you might not even want a new phone after six months or even a year. What happens then? Many who were banking on an iPhone 5S launch earlier this year were disappointed that one hasn’t seen the light of day yet. The iPhone 5 launched almost a year ago. If you had purchased such a plan at that time, and hadn’t seen a worthwhile upgrade yet, you’d have grossly overpaid for the phone while others who signed on for two-years paid a third of what you did for the same device.

If you do upgrade, great. You have this fancy, new phone, for which you’re going to be paying monthly once again. And what happens if you decide you like it and want to keep it for a full two years? Again, you’ve paid toward the full purchase price for it when you could have paid a fraction of that in the first place through a subsidized contract. Essentially, you’re damned if you do, damned if you don’t.

It seems the details of these plans have been made in such a way to confuse customers into thinking they’re getting a great deal, and significant savings, when in actuality, they’re not. Has the U.S. taken tips from the Canadian wireless market?

Aside from the confusion, potential deception, and inflated pricing these “deals” may result in, the very idea of the trade-in seems illogical. It essentially means consumers are renting phones instead of buying them. While customers do like to update their smartphones more often then ever these days, the age of phones being tucked away in desk drawers for years on end aren’t really here anymore. “Old” mobiles are often still very new, and given to family members (grandma, grandpa, perhaps), friends, kids, or even resold on sites like eBay, Craigslist, or Kijiji for a good value.

So what would make sense? How about two-year contracts where customers can upgrade after six months to a new device by paying the subsidized price for that device, and perhaps signing on for an additional year, two-year, or even six-months of service? One can change the service side of his plan at any time, as long as he locks in for a longer duration from the carrier. So why not be able to change devices under the same terms? The carrier is guaranteed the customer’s business via a contract, and the customer is happy because he can use the device he wants. It’s a win-win. And the old phone will likely go to another paying customer who’s going to use a service plan that brings even more revenue to the carrier.

My advice to U.S. wireless customers: don’t buy into these trade-ins. Chances are, you can wait an extra year for the hottest new device. If you can’t, find someone to buy your old one from you, and put the money toward an early upgrade of the one you want. Consider that us folks to the north have been chained to our devices for 36 months for a long, long time. While lengthy contracts are limiting to customers, contracts in and of themselves aren’t all that bad. And paying less upfront for a device, then never having to fork over another penny for it again because the carrier knows you’ll be paying a monthly service fee for a specified period of time, is a far better deal in this writer’s eyes then paying monthly for a phone you don’t get to keep, may get rid of early, and could get for far cheaper in the first place if you kept it.

As for Canadians, if you see carriers north of the border pick up any such trade-in programs here, or if Verizon does enter the market and brings these trade-ins with it, don’t buy ‘em. There’s just no logical way they could be worth the big bucks.