How phone carriers hide the true cost of a free upgrade
I managed a phone store in Portland for four years, so I have delivered this pitch several hundred times. Let me explain what I was actually doing.
There is no free phone
The word free means the carrier will credit you the value of the device, spread over twenty-four or thirty-six monthly bill credits.
You are financed for the full retail price on a device payment agreement. Each month you are charged an instalment and credited the same amount. Net zero, so it looks free.
The device is not free. It is a loan with the payments forgiven monthly, conditional on you doing certain things.
The conditions
Stay on the account for the whole term. Leave at month eighteen of thirty-six and the remaining device balance becomes due immediately. That is the number that shocks people.
Stay on a qualifying plan. The credits are usually tied to a specific plan, often one of the more expensive ones. Downgrade and the credits can stop, leaving you paying instalments with nothing offsetting them.
Sometimes: add a line, port a number in from another carrier, or trade in a device that meets their condition standards.
The trade in is where I saw most of the disappointment. A device the customer valued at several hundred dollars gets assessed as damaged for a scratch, and the promotional value collapses.
Where the money actually is
The plan.
A free phone attached to a plan that costs twenty dollars a month more than you need is not free. Over thirty-six months that is seven hundred and twenty dollars, which is the price of the phone.
That is the entire trick, and it is not really hidden. It is just never presented as the two numbers side by side.
Then the add ons. Insurance, which is usually presented as a foregone conclusion and which I will come back to another time. Activation and upgrade fees, which are real money and which appear on the first bill rather than in the conversation. Accessories bundled at full price.
How to work out the real cost
Take a piece of paper and write two columns.
Column one, the upgrade: monthly plan cost times the term, plus any activation fee, plus insurance if you take it, plus any instalment not covered by credits. That is your total.
Column two, the alternative: the cheapest plan that meets your actual usage, times the term, plus the cost of buying a phone outright, which can be an unlocked model or a good condition used one.
Compare the totals, not the monthly figures. The monthly figures are designed to be compared and they are the wrong comparison.
I have run this for friends more than once and the outright purchase on a cheap plan usually wins, sometimes by several hundred dollars.
What to ask in the store
What happens to the credits if I leave early. Get the number.
What happens if I change to a cheaper plan.
What is the total I will have paid at the end of the term.
Is there an activation or upgrade fee, and how much.
What exactly qualifies my trade in for the advertised value, and what happens if it is graded lower.
A reasonable salesperson will answer all of those. If the answers get vague, that is information.
What I would do
Work out what data you actually use, from your own bill, over three months. Most people are on a plan two tiers above what they need.
Pick the plan on that basis first, before discussing any handset.
Then decide separately whether you want a new phone, and whether buying it outright on a cheaper plan beats the credit arrangement.
Separating the two decisions is the whole thing. The industry works by tying them together, because tied together they cannot be compared.
