If you haven’t seen one of those commercials for free phone from one of the Big 3 (T-Mobile, ATT, or Verizon), turn your head and look at the ceiling, you might be living under a rock.
But if you have, what’s the deal with those free phones? Are they really free? Should you get them? What’s the catch?
Well, this shouldn’t come as a shock to any of you: YES, there is a catch. BUT, it is not all bad, IF AND ONLY IF you meet a certain criteria.
Carriers usually advertise free phones as a loss leader, an investment to lure in new customers, or to keep the old one from leaving.
How does it work exactly?
You enter into a contract of a mobile data plan for X amount of month (usually 24 for T-Mobile, 36 for Verizon)
In return, they give you an advertised phone (Let’s use the standard iPhone model MSRP)
An iPhone’s MSRP is around $800.00 plus tax. A Tmobile plan is around $100.00 a month (For the premium tier that will get you a free phone)
Let’s do the math
$100.00 x 24 = $2,400.00 (T-Mobile Plan; prices scale down with more lines, 1 Line = $100.00, however 4 Lines = $65.00/each)
$800.00 / 24 = $33.33 (iPhone payment/month if you were to buy at MSRP)
$100.00 – $41.67 = $58.33 (This is your true monthly mobile data rate)
As you can see, it might be smarter to get the iPhone separately, and look for a cheaper company like Visible or Mint, pricing more conservatively at around $15.00/month. But hey, we’re here for theoretical math, does it get cheaper?
More math!
T-Mobile often advertises a 4 lines for $100.00, with each line accompanied by a free phone offer (usually the basic iPhone, pricing at $800.00 before taxes)
$800.00 x 4 (Phones) = $3,200.00
$100 x 24 (Months) = $2,400.00
You’re getting $3,200.00 in phones (before taxes), while only have paid $2,400.00 in premium for the data plan. How is that possible?
You’re not reading it wrong, and this is exactly right. T-Mobile were willing to invest (lose) $800.00 to have you on as their customer, with the consideration that you might stay a loyal customer, thus making their money back in the long run.
But what if it’s not 24 months for T-Mobile, it’s 36 months from Verizon? Since Verizon demands 36 months, they are “generous” enough to give us a $1,000.00 phone per promotion.
Uh oh, more math I guess..:
$100.00 x 36 = $3,600.00 (Verizon Plan, prices scale down with more lines, 1 Line = $100.00, however 4 Lines = $65.00/each)
$1,000.00 / 36 = $27.77 (iPhone payment/month if you were to buy at MSRP)
$100.00 – $27.77 = $72.23 (This is your true monthly mobile data rate)
Ouch, it doesn’t seem like these plans are friendly toward those who only utilize 1 line. However, the pricing does scale down to break even as you purchase more lines. But is that really worth it? Unless you have a use for it, buying more lines to get free phones seem… counter-productive.
Enough about the math, let’s get back to our conclusion!
So what happens now?
If you were to purchase a single line for the hope of a free iPhone, you might be paying 2x the amount of the phone’s value to Verizon instead. With T-Mobile, it’s about the same, unless you are bringing on more people (more lines).
T-Mobile seems to be the cheaper competitor, with more opportunities to save and, if you have 4 family members/friends/etc and they all want/need/about to buy a new phone, yes you should consider T-Mobile as a strong contender. However, this promotion is clearly not for everyone, and they throw the word “FREE” around very loosely. Consumers must do their research before any committment.
T-Mobile reserves the right to “cancel” your free promotion if you violate the contract. It’s easy to think that you won’t, but some people inadvertently do. And breach of contracts are very expensive..
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