At a highly anticipated event last week Apple has unveiled the next generation of iPhones. I had a personal interest in this upgrade – the contract on my Verizon family plan is up and it’s time to replace our aging iPhones 5s. I’ve been waiting patiently and salivating over the large screen iPhone 6 Plus. Now 6s Plus is available and has a lot of cool new hardware features (I won’t get into the technical aspects as there are plenty of good articles on that). Once I started looking into my carrier and payment options, I quickly realized that I needed to crunch some numbers and make some spreadsheets (yay!) to be able to make an informed decision. What follows is the result of my research – I believe people looking to upgrade their iPhones will find this post quite useful. And it’s sort of related to financial planning!
Bear in mind that this analysis is specific to my family: we need a plan for two iPhone lines with shared data. Although if it was up to him, our 2-year old would certainly claim that he MUST have him own iPhone! Also, there is a variety of data packages out there, but we typically use between 2-3 GB of data a month, so that’s the range I’m looking at.
Since the last time I upgraded our phones there have been some major changes in wireless hardware purchase options:
1) Most carriers are getting away from 2-year contracts and subsidizing phones.
2) Apple just introduced its iPhone Upgrade Program. Basically, you get to “lease” hardware directly from Apple, get the newest iPhone every 12 months & be covered by the useful AppleCare+ plan.
Since I’m with Verizon and it still technically offers 2-year contracts with subsidized phones, let’s take a look at my current options for purchasing a new iPhone (Exhibit 1).
Exhibit 1 – Options to Buy 64GB iPhone 6s Plus
Options 1 is the familiar 2-year deal; in #2 you just pay cash with no strings attached; in #3 Verizon let’s you spread the $850 over 24 months (with no financing costs). And then there is the Apple’s upgrade plan – it’s basically equals to $849 for the phone + $129 for the AppleCare+ pro-rated over 24 months (no financing costs either).
At first glance Verizon’s contract option looks very appealing – you can save $450 upfront. But Exhibit 2 adds the cost of actual wireless service to the equation to compare apples to apples (ha, I’m so clever). It shows the total monthly cost of two 64GB iPhone 6s Plus, prorated over 24 months.
Exhibit 2 – Total Cost Comparison for 2 iPhones 6s Plus
The trick is that although 2-year contract plan offers a large discount on the phones, the service itself is $40 higher than no contract option (or $960 over 24 months vs. the $900 discount on 2 iPhones). So for $8 more a month (5%) you get a brand new iPhone when it’s released each year, instead of having to wait two years! And you are covered by AppleCare+ which means you don’t really have to worry about scratching/dropping/drowning your phone (just don’t lose it). For me personally, it seems worth the extra $8 a month (for both phones) to get these benefits.
Another wrinkle is carrier selection – you get to choose among 4 majors every time you get a new phone. I’m happy with our Verizon service but I might as well check out my other options using Apple’s handy comparison tool (Exhibit 3). After looking at the choices, I’m likely to going to stick with our current Verizon service that’s boxed in the table. We could save $15 a month by going with 2GB Sprint plan, but:
1) We go over 2GB frequently and extra gig of data is $15
2) Verizon network is MUCH better than Sprint’s
3) We get a discount at Verizon through my wife’s employer (technically it’s 15% but the way they calculate it is screwy and really only comes out to $7.50 or about 5% of the total bill).
Exhibit 3 – Carrier Plans Available Through iPhone Upgrade Program
So at the end of the day, I’m going to go with the iPhone Upgrade Option and our current Verizon’s 3GB plan. It might not be the absolute best choice based on dollars and cents but I’m willing to pay a little extra to get a new toy every year and have the extra protection plan. Now that you see the options side-by-side, you can decide what makes sense for you.
Just to be thorough I should mention that this analysis doesn’t take any residual value into consideration. You can sell your old iPhone 6 Plus back to Verizon for about $300 after 2 years (you don’t own it under Apple’s plan). It’s very similar to leasing a car vs. buying one and driving it into the ground. Buying a phone (or a car) might be more financially sound but it’s not as much fun and comes with more maintenance costs/hassles.