AT&T Next is a scam!

If you know me, then you know I am an advocate of numbers. One thing that not many people know about me is that I have a Bachelors degree in Math. I was crazy enough to double major when I was an undergraduate.

Which brings me to my point: numbers can be used to prove points. NUMBERS DO NOT LIE. They CAN'T lie. Numbers are numbers and you can't interpret them beyond what they really are. 2 is 2, no matter what you do or say. It's black or white. This is why I love math. If you're a fan of the movie Mean Girls, then you know Cady Herron loves math because "it's the same in every country." Preach, girl!

Hence, the story of why I took it upon myself to find out if the new AT&T Next plan is worth the money, or if it's just a giant scam to make their customers FEEL like they are getting something for their money. My husband sent me this link on Twitter last night and asked me to read it and see what I thought. At first glance, it seems like a great idea. It also sounds like this is a concept that many of the other cell phone providers are jumping on board with. The first thing that jumped out to me was "monthly payments". RED FLAG. Sorry, but anytime I read anything about making monthly payments, I immediately question it's value....

In my analysis, I picked the Apple iPhone, since this is what I use. This method can be applied to any other equivalent smartphone (Samsung Galaxy, etc).

Using this Wikipedia page for the iPhone, the earliest release dates for all past iPhones were the following:

• iPhone 1st Gen: June 29, 2007
• iPhone 3G: July 11, 2008 = 13 months between release dates
• iPhone 3GS: June 19, 2009 = 11 months between release dates
• iPhone 4: June 24, 2010 = 12 months between release dates
• iPhone 4S: October 14, 2011 = 16 months between release dates
• iPhone 5: September 21, 2012 = 11 months between release dates

It takes Apple anywhere from 11 to 16 months to release a new version of the iPhone from the previous release date. The average time it takes for Apple to release a new iPhone from the previous release date is ~12.6 months. So we'll say 13 months is good number to represent the average cycle of Apple iPhones. (Does this mean we can expect a new iPhone this Octoberish? An iPhone 5S perhaps? I have no idea - just a thinking out loud.)

If you are currently with AT&T, then you have to wait for your contract to end in order to buy the iPhone at it's discounted price of $199 + taxes and fees (assuming you buy the cheapest one - I would). Looking at my past transactions, I paid $252.54 after taxes and fees. You then have to make your monthly payments to AT&T for 2 years (~$85/month rate plan that includes voice, texting, and data plans) before you are eligible for an upgrade to the next version of the iPhone. After 24 months, we can say we're 100% sure there will be a new iPhone version out based on history. In fact, there maybe have been 2 upgrades since your initial purchase.

What people don't realize is that you are actually still paying for your iPhone during those 2 years where you are locked in. The reason it is so much cheaper to buy the iPhone when you sign a 2 year contract is because you are actually subsidizing the rest of the iPhone retail price through your monthly rate charges through AT&T. You actually are paying the full retail price of the iPhone, but most of it is over time through your monthly rate plan bill. This is why there are such hefty termination fees for breaking your contract - they are trying to "recoup" the amount of the retail priced iPhone that they lost because you cancelled. The full retail price of an iPhone 5 16GB contract free is $649. Since you paid $199 up front, that means you're paying $450 over 2 years, which equates to about $19/month. This is only my estimate, though. I am unable to find any information specifically HOW MUCH of your AT&T monthly rate plan is actually the iPhone subsidy. Are you they putting in more than $19/month? Does anyone know? If anyone can find this information for me, that would be great.

Let's say you buy the iPhone for $252 and then faithfully pay your monthly AT&T bills on time for 24 months. Technically, your iPhone is paid in full. Why doesn't your bill go down? The amount of your monthly rate plan that accounted for the iPhone subsidy should go away since you made those payments for 2 years. WRONG. According to this CNET article:

"AT&T doesn't adjust the price of your monthly service based on whether or not your phone is fully paid for or not. This means that the price of your service when you buy a new phone with a subsidy is the same at the beginning of your new contract as it is 24 months later when the contract expires and you have finished paying off the phone. Carriers force customers to pay a hefty early termination fee to cover the cost of the device if they leave the service early. Of course, it would be better for consumers if AT&T and other carriers had a policy so that when you finished paying off the subsidy your monthly service cost would be reduced, but most do not. Why? The simple answer is because AT&T and the other carriers who have set up their plans in the same fashion want to wring as much revenue out of you as possible. And the truth is you are an ideal customer for them right now. You paid off of your phone subsidy many moons ago and now you're still paying for the service."

Bottom line: AT&T is a bunch of crooks. Think of like this. In November 2012, I went in and made a $199 downpayment towards a new iPhone 5. After 24 months (November 2014), I will be done making the payments on the rest of the retail price of the phone through my monthly rate plan payments. But they will continue to make me pay for the iPhone subsidy even after 24 months because they are assholes and think we are too stupid to know the difference.

People were catching on to this horseshit, and because of that, other providers were starting to do away with their subsidies altogether.

Enter: AT&T Next.

With this, you can choose to pay an extra $32/month for your new Samsung Galaxy. I am going to assume the iPhone will be about the same monthly installment.
If you do this for 1 year, and a new iPhone comes out (which we know based on history, there probably will be), then you can have the option of trading in your old device and receiving the new device at no charge. OR, if you like your old device and don't want to trade it in, then you can make the $32 payment for 20 months and then you don't have to make that payment anymore.

This press release says nothing about if the current $85/month rate plan will decrease. In theory, it should, since you are no longer subsidizing your phone for 2 years but instead making $32/month payments. But I have a feeling it won't....

You'll be paying $32/month for 12 months = $384. And then you must give up your old device. Since the retail price of the iPhone is $649, then they are forcing you to give up your old phone to pay for the remaining balance = $265. Keep in mind that now AT&T has your old iPhone, which they already got $384 from you for it, and they will turn around and resell it to some other poor soul. On the AT&T website, they are selling refurbished iPhones for a retail price of $599.99. So they are essentially going to get ~$1000 from one used iPhone. About ~1.5 times more than what it's worth.

So let's break it down:


Current AT&T Plan:
Initial payment: $199
Upgrade fee: $35
24 months x $85 rate plan (includes subsidy for iPhone) = $2040
TOTAL amount over 2 years: $2274
~$94.75/month
You could elect to sell your used iPhone on eBay or whatever, and possibly reduce this amount.

AT&T Next:
Initial payment: $0
Upgrade fee: $0
24 months x $85 rate plan = $2040
24 months x $32 AT&T Next Fee = $768 assuming you traded in your old phone for a new one sometime within that 2 year period
You no longer have your old device to sell.
TOTAL amount over 2 years: $2808
~$117/month

Say it with me now: LOL. NICE TRY AT&T.

Here is my recommendation.
Virgin Mobile offers pre-paid, no contract plans for iPhones. Seriously Look here.
AT&T, T-Mobile, Verizon, and plethora of other providers also have pre-paid, no contract options, but I haven't been able to find any that extend that option to iPhones. The only one I can find is Virgin Mobile, which runs their network off of Sprint. If I'm wrong, please tell me.

With Virgin Mobile, you are required to purchase your iPhone at retail price. When you receive it in the mail, then you can activate your pre-paid plan online.

No Contract, Pre-Paid Plans at Virgin Mobile
Initial payment: $549.99 (retail price of iPhone 5 on Virgin Mobile's website)
Activation Fee: $0
24 months x $35 rate plan (300 minutes, unlimited data and texting) = $840
There is no contract - I just picked 24 months as a comparison to the AT&T plans above.
TOTAL amount over 2 years: $1600 (I estimated taxes and fees and factored it in)
~$66/month


If you are concerned with making the best bang for your buck, the AT&T Next plan is NOT the way to go. But if you're like most Americans, and only care about the up front cost rather than what you're paying for, then sure... go for it.

Since when did we stop asking "How much does this cost?" and start asking "What are the monthly payments?" Really, the only bad thing about getting a pre-paid Virgin Mobile plan is that you have to pay for the iPhone up front. But the rewards over time outweigh that.

Assume you buy the iPhone at retail price from Virgin Mobile. You are now only paying $35/month + taxes to use it. (Assume $45/month after taxes). With AT&T Next, you're paying $117. That is a difference of $72/month. Assuming that the newest iPhone will come out in 13 months from the time you buy it, you only need to stash away ~$45/month over those 13 months into a savings account in order to be able to pay for the next one. That frees up about $30 a month! You could even elect to put that $30 into your next iPhone savings account, and after 13 months you'll have $975 in there. That's enough to buy your iPhone, and you're already half way to saving up for the NEXT iPhone after that!

See - isn't math amazing?