It’s that time again. Time for the launch of the new iPhone! Every September, my boyfriend watches the Apple keynote event where they introduce the new iPhone. But here are some reasons why you might want to skip the new iPhone, and wait for the next one.
The Launch of the New iPhone 7
My boyfriend has been an Apple fanboy since at least the second iPhone, and maybe even earlier than that. (I didn’t know him back then.) Since then, every year he has carved out time in his day to watch the September keynote and take notes about the new products. For the years we’ve been together, he would always give me the annual update as soon as I walked in the door that evening. I’d barely get in the door before he’d start gushing about the camera functions, or the new iOS, or some other feature that excited him.
This year was different. For the first time since I’ve known him, he was only mildly interested in the new iPhone. He was convinced that it wasn’t going to be anything exciting, and that Apple was just going to be coasting this year. As an Apple shareholder, I was a little nervous. As his girlfriend, I was stoked.
My boyfriend is pretty financially responsible, but he’s not as frugal as I am. He would happily hire a housekeeper every week, and a personal assistant if possible. I view those things as leaks in a ship.* Because of his affinity for Apple products, he’s got a MacBook Pro laptop (several years old now, but still), an Apple watch, and an almost-two-year-old iPhone 6 plus. He bought all of these items when they were first released, and finds value in being the “cutting edge” guy.
So because of his lackluster response when I asked him about the upcoming Apple keynote address, I thought maybe things have changed. For the first time, there was hope that he wouldn’t automatically upgrade his phone just because he’s out of contract and the new phone had launched.
Why You Might Want to Skip the New iPhone
With every purchase you make, there is a sneaky way to discount the purchase price. All you need to do is replace that item less often. The discount gets even bigger on items that need to be replaced fairly often.
For car purchases, most people buy a new car after only 6.5 years. By stretching that out just one additional year, you save 15% on all of your car purchases for life. If you can stretch it out two years, you save 25%. When the average household spends about 14% of their income on transportation expenses, the discount is meaningful.
For phones, the lifespan is even shorter, which means the discount is bigger. Smartphone life cycles are fairly short. Apple usually overhauls their phone every two years, with the in-between years offering more minor upgrades. Because Apple has a rabid fan base, most iPhone users upgrade every two years or more often than that.
It makes sense, sort of. Cell phone providers used to give you a free or heavily discounted phone if you signed a 2-year contract. If you got a free phone every two years, why not upgrade, right? But since smartphones came on the scene, phones have become more expensive. Carriers would often give you a discount with a 2-year contract, but you’re still shelling out real money to get a nice phone.
If you can replace your phone every 3 years instead of 2, you’re saving 33% on the price of your phone. Say your shiny new iPhone costs $500. That’s $250 per year on a 2-year cycle. But stretch it out to 3 years, and you’re paying $166 per year instead. That’s a big difference! I’d take $100 per year for the rest of my cell-phone-owning life, thank you very much!
Changes in Cell Phone Plans
In recent years, the cell phone providers have been switching up how they charge customers for cell phones and plans. It seems to me that a lot of the reason for the switch-up had to do with iPhones. Initially, AT&T was the only cell provider that had iPhones. They charged a couple hundred bucks for the phone, and then the monthly plans were fairly expensive. It was a way to make the phone look cheaper than it was, and then the company made the money back on the monthly plans. iPhone fans had basically no choice but to pay AT&T’s steep monthly prices.
Later, the market opened up to the other carriers. Thank God. AT&T service is terrible in my area. It seems like when that happened, the companies starting really competing against each other again. Finally, the monthly plan costs started coming down slightly. But even among the carriers, the plan costs stayed fairly high because they needed to make their money back after discounting the phones so much.
T-Mobile entered the scene with a cheaper phone/data plan for a while. Then Sprint did. Neither of their networks were fabulous, but they were working on it, and Verizon and AT&T were losing customers to those cheaper plans. About two years ago, I noticed that Verizon’s plan costs had dropped significantly, especially for family plans.
The Deals Now: Who Knows What the Heck is Going On?
Flash forward to today. Now most of the carriers aren’t offering any 2-year contracts at all. Except when they are. What? Yeah, I know. Keep reading.
There’s No Such Thing as a 2-Year Contract
So Verizon and the other major carriers have now done away with 2-year contracts. You now just buy your own phone at full price, either up-front or in monthly installments. As a result, the monthly plan fees should be lower because they don’t include the extra profit margin needed to recoup the cost of the hefty up-front discount. Just eyeballing the numbers, it looks like the plans are about $30 cheaper per month than before. Hooray!
Except There Is Still Sort-Of a 2-Year Contract
But, if you get a phone from one of the carriers on a 2-year payment plan, you still end up making the monthly payments for 2 years to that carrier. You can switch to a different carrier during that 2-year period, but you either need to pay off the phone in full, or (for some companies) you can turn it back in. Okay…
But I Heard That I Can Get a Free iPhone 7
Yeah, sort of. But in order to get that deal, you need to trade in your old phone (assuming it’s not *too* old and it’s the right phone type that they’re looking for). If you do that, you get a monthly credit on your bill for the next two years, which eventually will cover the cost of the new iPhone. If you bail on your contract early or switch providers, you have to either pay for the remaining cost of the phone or give the phone back. Oh, and if you want a new iPhone 7 with more than 32 GB memory, you’ll be paying a little extra cash on top of that anyway. Sounds a lot like a 2-year contract, right? Yep.
Is the No-Contract Thing Better or Worse?
There’s good and bad about the no-contract deal. It seems mostly good to me.
First, the bad: if you understood the way cell phone contracts were priced before, it’s a whole new learning curve. Also, the way these new plans are priced, with everyone paying monthly installment payments for their phones, it may usher in a whole new era of people getting used to having phone payments alongside their rent/mortgage and car payments. All of these payments carry an interest charge, whether hidden or not, so for people who think payment plans are the new normal, they end up paying a lot more in unnecessary interest in the long run.
Now, the good: Pricing is more transparent between plan charges and phone costs. You can also choose a phone plan that’s based more on your actual plan usage without the cost of a phone upgrade being priced in ambiguously. Also, you can now switch carriers whenever you like.
The best news of all is that now you are REALLY benefiting by keeping your old phone for longer! In the days of the 2-year contracts, when the contract was up, you still ended up paying a higher monthly plan cost because the cell providers had that extra profit margin built in to recoup the cost of the phone discount. Say it’s an extra $30 built into your monthly contract. You still saved money by hanging on to your old phone because you didn’t incur your portion of the upgrade cost, but the cell phone companies were still making extra money off of you in the form of that extra $30/month. But now that the phone cost is totally separate, you save that extra $30/month, too!
When Is It Worth It to Upgrade?
If your phone is falling apart, then upgrade. If the battery life is so short that you can’t use it for a normal day, upgrade. But if your phone is mostly okay and you can hang on just a little while longer, you can save a lot by delaying. You could skip the new iPhone and hold out for the next version.
My iPhone 6 plus still has good battery life. It can easily last all day on a charge if I’m using it somewhat infrequently. If I’m playing a lot of games or using the GPS, I will have to charge it at some point, but I’ve got chargers stashed everywhere so I’m good for now. I’m glad I bought the 128 GB version, because I still have plenty of space for music, photos, and videos.
For me, I’ll probably skip the new iPhone. I can wait until next year to upgrade. Or maybe even the year after if my phone can handle it. We’ll have to see how it holds up. The 6 plus has a larger battery than the regular phone, so even with the regular battery deterioration, it should last longer.
The boyfriend is probably going to upgrade now to get the newest, hottest thing. But since there are no more 2-year contracts, at least we won’t have the complication of having our contract renewal periods being staggered. We might be able to just switch to the lower-cost monthly plan and get new phones on our own schedules going forward.
Are you planning to upgrade with the new phone? What’s your average phone renewal cycle? What do you make of these new cell phone plans?
* As Benjamin Franklin said, “A small leak will sink a great ship.”