Saturday, August 10, 2013

A Bit On Cell Phone Upgrades-- Next, Edge, Jump

American cellular phone companies originally structured their service to entice new customers with heavily subsidized handsets in exchange for a nearly iron clad two year contract.  If a consumer wanted to ditch their contract early, they faced an Early Termination Fee (EFT) of between $175 to $350.  This EFT sought to recover losses from the subsidized handsets, but also acted as an incentive to stop churning customers.  This practice did not always settle well with consumers stuck with lemon phones or if cellular coverage was wanting so a consumer wanted to stop service

Cellular service providers got the message that both Uncle Sam and consumers were unhappy, so they figured out other ways to cut their losses.  Recently, T-Mobile tried to co-opt a European approach by not offering subsidized handsets with supposedly lower monthly plan rates.  Not being locked into a contract offers the illusion of freedom, but full freight for a smart phone can be $600 up-front and consumers could walk away with their GSM phones and go to ATT or a Mobile Virtual Network Operator (MVNO) such as Wal-Mart’s Straight Talk to get lower rates.

While many cellular consumers like the notion of not being bound by an iron clad contract, what they really want is to feed their fetish for a constantly current cell phone.  Whether a consumer is locked into a two year contract or paying the full sticker price for a smart phone, there are still ties to a handset which makes a consumer chary to switch. 

Several of the major cellular carriers are accommodating the consumer desire for constantly current cell phones with new programs.  

T-Mobile’s Jump program is a no-contract cellphone customers who pay an extra $10 a month for insurance and Jump plan participation.  T-Mobile typically runs a credit check on prospective new customers in order to determine how much of a down-payment is required for a phone purchase in 20 monthly installments on top of your phone plan (although T-Mobile stresses that everyone eventually pays the same price for the handset). But if you are a Jump plan participant, after six months a consumer can trade in an old handset and purchase another on a 20 month installments, but the consumer is no longer responsible for payments on the old handset. Of course, if a customer wants to keep the handset, he must pay the remainder of the balance of the installments.  


AT and T Next is a way for an AT and T customer to get a new phone every year. When a customer chooses AT and T Next, the price of their technology is broken into 20 monthly installments (with no finance charges).  At the time of purchase, the customer does not have to make a down-payment but must pay the full sales tax.  After 12 monthly payments, a customer can trade in his device and receive a new one, and no further payments are required on the old device and the customer starts over on a new installment plan with no activation or upgrade fee.  After 20 months, a customer does not need to make more monthly payments and the superannuated telephonic toy is yours to keep. 


Now Verizon seeks to cut into this anxious upgrade consumer segment with Verizon Edge on August 25th 2013.  The Verizon Early Upgrade Program entails a consumer purchasing a phone on a month to month plan and the full retail price is broken up into 24 installments.  When purchasing the phone, the consumer makes the first equipment payment and presumably pays sales tax on the full retail price of the device. 


These early upgrade programs are a good compromise which allows service providers to re-coop costs on handsets without EFTs while effectively locking consumers into relationships with cell phone providers without an iron clad handshake.  Consumers who opt into early upgrade programs can get the latest and greatest (at that moment) technology and not be stuck waiting so long for an upgrade. And these plans did not require government mandates or Uncle Sam engineering the marketplace. 


Personally, I am more worried about having favorable cell phone plan rates and coverage rather than periodically having a shiny new telephony toy.  However, I appreciate that I am in the minority in the marketplace.  As for those who have a phone fetish to always have the latest and greatest, my tongue in cheek advice is : “Next, Edge, Jump”!



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