Yesterday, Apple announced a new iPhone, but if you’re looking to pre-order it this weekend, you may find that it costs $650—a far cry from the $200 it cost on a lot of older phone plans. I have some bad news for you: your phone never cost only $200
We’ve talked a lot about the cost of smartphones recently. From buying outright to carrier’s confusing buying plans, there have never been more options for purchasing a phone, and most of them are confusing. However, they all share a common thread: all the new plans are designed to make you understand how much you’re paying for your phone. Unlike before, when carriers tried to hide the cost of a $650 iPhone behind a $200 subsidy.
The Scam of Smartphone Subsidies
If you have a cellphone in the US, you’re probably familiar with the practice of getting a new phone every two years under contract. Maybe you paid nothing, maybe you dropped a couple hundred bucks, but either way the phone was relatively cheap. If you ever even heard the full price of a smartphone (often $600+), you would laugh all the way to signing that contract.
With these subsidies, carriers were able to hide the real price of a phone from us. This made sense when phones were cheap and a contract locked you in, but with smartphones, they actually became a pretty bad deal.
For example, Verizon’s most recent subsidized plan worked like this: You’d pay $200 for that new iPhone up front. If you were the only person on your plan, you’d pay $110 a month for 6GB of data ($70/month for 6GB of shared data, plus $40/month per person on the plan). Now, instead of paying $200 up front, you pay the full $650 for your phone, but your plan only costs $80 a month ($60 for the data, $20 per person on the account). So, over two years, here’s how much each plan costs:
New plan: $650 phone + ($80/month for 24 months) = $2,570
So, while your phone seems more expensive now, the old subsidized plans actually cost you $270 more in the long run. Sprint, T-Mobile, and AT&T all operated in a similar fashion, and it’s why off-contract plans were such a good deal (but were not nearly as popular).
Now, though, most carriers have switched over to this new, cheaper, more transparent way of doing things. And, best of all, those plans allow you to leave your carrier whenever you want, provided you’ve paid off your phone. This is a good thing. It’s how every other device on the planet works. Comcast doesn’t raise your monthly bill because you need to buy a laptop. You just go buy one.
Subsidies hid the real cost of phones from us. We not only paid more in the long run, but we didn’t value our phones as much as we should have. In the old days, you could walk into a store and see a top of the line flagship next to last year’s mid-range phone and the price would only vary by $100-200, tops. That would be like if a dealer showcased a Kia and a Porsche next to each other with only $1,000 price difference between them. Who wouldn’t choose the Porsche? It’s no wonder we got addicted to expensive smartphones.
Cellphone plans are still confusing as hell, but at least they’re getting a little more transparent. Your phone doesn’t cost $200, and it never has. Anyone who’s ever broken a phone without insurance knows this. We should be treating new phones like buying a new laptop or tablet. There are low-end models, and there are high end models. Just know that if you want the Porsche, you’re gonna pay for it.