Friday’s release of the newest iPhone marked a turning point in the way Americans pay for cellphones.
With the release of Apple Inc.’s iPhone 6 and 6 Plus, consumers are now able to escape the two-year contract in multiple ways, if they choose.
Besides prepaid plans, which accounted for half of all new wireless accounts between 2008 and 2012, carriers and some retailers are offering interest-free installment plans, and “phone for life” plans with unlimited data and automatic upgrades every two years.
In the past, standard plans required users to sign up for two-year service commitments. They paid a lower price for the phone, such as $99 or $199, and the remaining cost of the phone was buried in the fees that cellular-service providers charged.
Those plans still dominate the industry, in part because they become lucrative for carriers when, after the two-year period elapses, they keep charging consumers the same monthly fee even though the phone is paid off.
But now, carriers and retailers have started to separate the cost of the phone from the cost of the service in what they’re calling installment billing.
“This is the first time that Apple buyers will be confronted with installment billing,” said Louis Ramirez of Dealnews.com. And it’s a large market considering new options. Although most Android users won’t jump ship, a pool of 100 million customers have been waiting to upgrade from the iPhone 5 and earlier models, according to Tim Bajarin, an analyst with Creative Strategies market research in San Jose, Calif.
“The exciting part is the ability to upgrade earlier without penalty,” said Josh Will, senior category officer of mobile phones at Richfield, Minn.-based Best Buy, which has an exclusive on the new installment plans among retailers.
Installment billing allows customers to spread the cost of the iPhone 6 ($649-$849) or 6 Plus ($749-$949) over 20 to 24 months, depending on the carrier. After one year, customers can pay it off in full or trade it in if they want a new model phone. Will said that for almost a decade, consumers have been asking, “Am I upgrade-eligible?” when a new phone comes out. “Now we can do better at meeting the customer’s needs,” he said.
Experts say that installment payment plans may be convenient for early adopters who want the latest phone, but they’re not much of a cost-savings for most consumers. “It’s the family of four or more that uses a lot of data that will save the most,” said Ramirez. “They can save $10 to $40 per month per phone if they’re using a lot of data.”
In a separate development, some retailers are offering discounts and incentives at the start of a new iPhone generation for the first time, though such deals require the two-year contract.
For instance, Wal-Mart is selling the 16GB iPhone 6 for $179 with a two-year contract, a $20 savings. The iPhone 6 Plus also gets a $20 discount – $279 for the 16 GB model. At Sam’s Club, which is owned by Wal-Mart, members can save $2 more per phone, at $177 and $277 for the 6 and 6 Plus, with a two-year contract.