AT&T is making it easier for customers to upgrade their cellphones more frequently, as long as they're willing to pay more.
The country's second-largest cellphone carrier says it's introducing an option called AT&T Next on July 26. Instead of paying, for example, $200 upfront to buy a smartphone, customers would pay monthly installments of $15 to $50 on top of their service plan, depending on the device.
The new plan is designed to satisfy customers who want the latest and greatest devices. The traditional two-year service contracts get in the way of annual upgrades. Last week, competitor T-Mobile US Inc. introduced Jump, which provides device insurance and more frequent upgrades for $10 a month.
Under the AT&T Next option, customers purchase a smartphone or tablet with no down payment and agree to pay monthly installments for the device. After 12 payments, they can trade it in and upgrade to a brand new device -- again with no down payment -- or they can keep using their device and have no more payments after 20 months.
AT&T says a Samsung Galaxy S4 phone, for instance, would require monthly installments of $32, or $640 over 20 months. At that price, the installment plan makes for a far more expensive phone than one bought for the usual $200 upfront fee.
A customer who trades the S4 in after a year also loses money compared with someone who buys the phone for $200, then breaks the contract after 12 months, pays the early termination fee and sells the phone to finance a new one. With the installment plan, the customer pays $384 in a year. Without it, the customer pays $478 for the phone and for activation, termination and upgrade fees, but can make about $300 of that back by selling the old phone. AT&T Next does eliminate the hassle of ending a contract and finding a buyer.
Under T-Mobile's Jump plan, customers pay an extra $10 a month and can upgrade up to twice a year. The customer must pay the $100 upfront fee for each new phone. With Jump, customers break even when they replace at least every 16 months.