Especially around the holiday season, consumers are often inundated with promotional offers from mobile service providers, promising them the latest and greatest version of their favorite mobile phones for free, as long as they switch providers. Have a Verizon plan for your iPhone 12 but want the new iPhone 15? Sign up with T-Mobile on its Go5G Next plan and get the new device for absolutely no cost. Currently with T-Mobile? Send your old phone to AT&T and signing up for an eligible plan, after which it will spread the credit for the old phone out over the next three years, such that your new phone will cost next to nothing.

The prevalence of such promotions might seem to suggest that the mobile service providers have a glut of brand new, cutting-edge phones on hand to give away for free. But that explanation is just about as likely to be true as people are to get something for nothing. That is, when it comes to these promotions, “free” isn’t really free. To make up for any upfront costs they incur to ship out a phone to consumers without charging for it, the mobile service providers require them to sign up for comprehensive data plans, chockfull of extra offerings and features that people may or may not really need or want. Those expansive plans are, of course, more expensive than the basic plans the companies offer. Ultimately then, most consumer wind up paying more for their free phone + service package than they would have if they had simply traded in an old phone, purchased a new one, and chosen a less expensive plan.

Consider a few comparisons. At T-Mobile, the free iPhone 15 promotion requires new subscribers to sign up for the Go5G Next plan, which provides unlimited high speed data, along with partner subscriptions to Netflix and Apple TV+. If a consumer already has the streaming subscriptions though (or doesn’t want them), those added features provide little actual value. A less expensive plan lacks those add-ons, and it offers “only” 50 gigabytes of high speed data—way more than enough to support even the most avid data scroller. Similarly, AT&T and Verizon require subscribers to take a plan that gives them more, like mobile hotspotting, and accordingly cost more. Here again though, many people have relatively little, if any need, for a mobile hotspot. Paying for 60 gigabytes worth of it likely serves less than 4 percent of the population, considering that only that small percentage of people ever use even 50 gigabytes of hot spot capacity.

By calculating the total costs over the length of each subscription, it is possible to see that in every case, the promotional offer costs more than trading in an old phone and selecting a more limited plan would. The differences range from just about $40 over three years to around $300 more. Yet these numbers might not tell the whole story. For some users, having excess capacity, even if it is more than they would ever use, can feel reassuring: They never face the risk of exceeding their data limits and having an unexpected extra cost or being restricted in their usage. Furthermore, having the latest phone is a common status symbol for consumers today. If they lack access to $1000 in cash (i.e., the price point for the iPhone 15), people still can obtain it. In a sense, the promotion becomes like a payment plan. Their monthly bill might be $15 or $20 higher over several years, but that increase is something they can handle with each billing cycle, even without making perfect fiscal sense in the long run.

Discussion Questions

1. How much is it worth to have the latest phone? Can providers effectively segment users who might be willing to pay $1000 immediately, or more money over the long term, to get the newest iPhone?
2. Why is having the latest version of mobile devices valuable to consumers? List as many reasons as you can.

Sources: Brian X. Chen, “Those Promotions Promising a ‘Free’ Phone? It Isn’t Free,” The New York Times, November 1, 2023; Jennifer Allen, “Best iPhone 15 Deals: How to Get Apple’s Latest iPhone for Free,” Digitaltrends, September 28, 2023