No-contract iPhone: Spend now, save $1,000 later

Talk, as they say, is cheap — and getting cheaper, on the mobile phone at least. But downloading and surfing the Web on smartphones is growing more expensive, though the carriers try to disguise it. Verizon Wireless and soon AT&T are pushing consumers toward shared data plans that provide unlimited voice and text messages but cap data usage. That, of course, is exactly the opposite of what most people want.

Given that the major carriers offer plans and services that ultimately are not so different, it’s noteworthy that two minor-leaguers — Cricket (the public brand for Leap Wireless) and Virgin Mobile (a Sprint subsidiary) — are now offering prepaid plans that let you buy and use an iPhone without a two-year contract or odious early-termination fees. Competition is finally, if belatedly, coming to the mobile data market.

Are there gotchas? You betcha. Both Cricket and Virgin charge much more for the iPhone 4S than AT&T, Sprint, or Verizon. Neither offers as much coverage as the majors, and in the case of Cricket there are serious questions about the quality of its service. Nonetheless, for some users the new plans are worth considering. But you have to look hard at the fine print and make some decisions about how you plan to use your iPhone. One hint: If you work in IT, you already think about TCO (total cost of ownership) when it comes to technology at work. Start thinking that way about your personal technology, too.

The gotchas: High upfront costs and limited “unlimited” plans The biggest gotcha, and this has been widely reported, is the upfront price of the hardware. Cricket charges a stunning $499 for a 16GB iPhone 4S and $399 for the 8GB iPhone 4. Virgin Mobile outpaces Cricket, selling the iPhone 4S for $650 and the iPhone 4 for $550. That compares to $199 for the 16GB iPhone 4S from AT&T, Sprint, or Verizon and $99 for the 8GB iPhone 4.

The difference is the subsidy: AT&T and Verizon charge you less than the cost of the phone and make up that subsidy via higher service fees. Virgin and Cricket do the opposite, essentially billing you what Apple bills them, plus maybe a markup. Note that the prices of iPhones from Cricket and Virgin are still less — by about $150 — than what Apple charges for its unlocked iPhones, which can be used by any GSM carrier (apart from Cricket or Virgin, so you can’t bring your unlocked iPhone to them).

Cricket offers what it calls unlimited voice and data for $55 a month. But that’s misleading. Under the company’s “fair use” policy, it will throttle your download speeds once you’ve used 2.3GB of data, so in effect it is a 2.3GB data plan. The Virgin Mobile service is a bit cheaper and offers a bit more data: $50 a month for 2.5GB of data before your “unlimited” connection slows down. By comparison, AT&T charges $110 a month for 3GB of data, unlimited voice minutes, and 1,000 texts. Verizon and Sprint have similar fees.

Possible gotchas: Quality of service and coverage Quality of service and coverage are issues with both carriers. I’ve never used Cricket, but I did spend some time looking up consumer reviews of the company’s service — and they are not pretty. There are lots of complains about poor customer service, with people saying they have trouble reaching a live person and the people who handled their calls were not helpful, even rude. There are also a lot of complaints about dropped calls. (I contacted the company’s PR office and never heard back.)

That said, it’s only fair to mention that Cricket and its parent company probably have millions of customers, and the people whose complaints I saw on the Web are obviously far fewer in number. People who are angry are much more likely to post comments than satisfied customers are.

Cricket says its service is nationwide, but when you call up its coverage maps, you need to type in your ZIP code to see if your area is covered. It’s crucial you check that before you sign up.

Virgin Mobile uses Sprint’s network, which is extensive but far from ubiquitous, so you’ll need to check its coverage maps, too. Speaking of misleading: Just because your city is on the list of covered areas doesn’t mean the entire city has coverage — there are plenty of dead spots. If you’re thinking of Virgin and know people who use Sprint, ask them come to your home or office and see what kind of reception they actually get. (That’s a good idea for any carrier, by the way.)

Still, I’d say advantage Virgin Mobile on the coverage and customer service issues.

TCO: Virgin and Cricket beat AT&T, Sprint, and Verizon by $1,000 You can cancel Cricket whenever you want, while you’re stuck with AT&T, Sprint, or Verizon for two years, unless you’re willing to pay an outrageous termination fee. However, using Cricket pays off (meaning when the higher upfront iPhone purchase price is made back by the lower monthly payments) only if you keep the service for six months; using Virgin pays off after eight months. Neither period is very long, but long enough where if you’re unhappy you may be stuck for a while unless you have cash to burn for another new iPhone.

The real advantage, though, can be seen over two years, the length of a contract with AT&T, Sprint, or Verizon. A two-year contract with AT&T (again, Sprint and Verizon charge about the same) comes to $2,839 exclusive of taxes for the 24 months of usage: $199 for the iPhone and $110 a month for data, voice, and texts. You’ll pay Cricket $1,819 for that same period: $499 for your iPhone, and $55 a month for unlimited voice, data, and texts. Virgin’s 24-month cost is $1,850, but you get a bit more data. That’s $1,000 in savings over two years.

Given that the cost over two years is so close between Cricket and Virgin, if I were interested in a prepaid plan I’d probably go with Virgin because I believe the overall level of service is higher. Of course, when you choose either you have to be able to afford a much bigger upfront cost than you’d pay Verizon, Sprint, or AT&T — you need the money for the iPhone when you start.

As noted, there are certainly service and coverage questions that have yet to be resolved. But I suspect that within six months there will be a lot of feedback from Cricket and Virgin iPhone customers, so we’ll all be in a better position to make an informed choice.

The most important word in the previous sentence is “choice.” After years of a near-monopoly, we’re beginning to see significant competition in the mobile market, and that’s a very good thing.

I welcome your comments, tips, and suggestions. Post them here (Add a comment) so that all our readers can share them, or reach me at bill@billsnyder.biz. Follow me on Twitter at BSnyderSF.

This article, “No-contract iPhone: Spend now, save $1,000 later,” was originally published by InfoWorld.com. Read more of Bill Snyder’s Tech’s Bottom Line blog and follow the latest technology business developments at InfoWorld.com. For the latest business technology news, follow InfoWorld.com on Twitter.