Why a prepaid iPhone is an amazing deal for bargain hunters

Even though it'll cost you full price for an iPhone on a prepaid carrier, Ask Maggie explains how it will still save you nearly $1,000 by going prepaid for the iPhone

by Marguerite Reardon

  June 8, 2012 12:00 AM PDT

The Apple iPhone has finally come to the prepaid market in the U.S., but is it really worth paying full price for the device when you can get it cheaper from a carrier that is subsidizing the cost?

The short answer is "yes." In this edition of Ask Maggie I explain why even with a higher upfront cost, a prepaid iPhone is a better deal than buying a subsidized version of the same phone from AT&T or Verizon Wireless. And I layout why prepaid is still cheaper even for people with discounted family plans.

I also explain why smartphone shoppers interested in the iPhone or a Microsoft Windows Phone may want to wait until the fall before pulling the trigger on a new phone.

How prepaid iPhones can save you a bundle

Dear Maggie,
My teenage son wants an iPhone desperately. He has been begging me to buy him one for years. We are a Verizon Wireless family and I already spend way more than I'd like on our wireless bill. I would let him get an iPhone if the monthly cost wasn't so darn high. (My husband and I also have smartphones, so that's an additional $60 a month right there!)

I saw that a couple of prepaid companies are now offering the iPhone. Do you think these plans offer a better deal? And do you think this would be a good solution to our dilemma? The price of the iPhone looks pretty high, but I'd be willing to split the upfront cost of the device with my son. (He'll have a job this summer.) I just can't afford the extra $30 a month for the data service, plus with the texting and voice service. It all gets to be so much!

Thanks for your advice,
Marie

Dear Marie,

It's no secret that you can save a bundle with a prepaid service plan. But in the past, prepaid customers had to sacrifice cool devices in exchange for cheap prices. Now even prepaid customers can get their hands on one of the hottest smartphones on the market, the iPhone 4S. Leap Wireless's Cricket service and Sprint's Virgin Mobile are among the first U.S. prepaid carriers to offer the iPhone 4 and iPhone 4S.

And even though some consumers may experience sticker shock at the upfront cost of buying a brand-new iPhone 4 or iPhone 4S, prepaid is still a much better deal if you compare pricing over the length of a two-year contract.

As I mentioned the upfront cost can be difficult for some consumers, but if you and your son can afford to spend the money on the new iPhone, you will be able to save yourself a lot of money over the next couple of years.

How much can you save? Let's compare what it would cost you to own an iPhone 4S on Virgin Mobile for two years versus what it would cost to own the same phone on Verizon Wireless. Even though you have to pay $449 more for the iPhone 4S on Virgin Mobile, you will actually save nearly $1,000 over two years by using the Virgin Mobile prepaid plan over a two-year contract with Verizon when comparing individual plans.

Virgin Mobile:

• iPhone 4S = $649
• Monthly service with 300 voice minutes, unlimited texting, and up to 2.5 GB of data= $30
• Total cost for 24 months = $1,369

Verizon Wireless

• iPhone 4S = $200
• Monthly service with 450 voice minutes, unlimited texting, and up to 2GB of data. = $90
• Total cost: $2,360

Even with your family plan, you would still end up saving money paying the full price of an iPhone 4S and using Virgin Mobile's prepaid service compared with getting a subsidized iPhone from Verizon. The monthly service cost per person for a family of three on Verizon's family plan with three smartphones is $73 a person. This is a savings of $17 per month for each person on the family plan when compared to Verizon's individual plan. But if you go with Virgin Mobile, you can save an additional $43 a month on your service compared to the Verizon Family plan.

Here's the breakdown for the cost of Verizon's family plan:

• $90 for 1400 voice minutes
• $10 for one additional line (The first two lines on the plan are free.)
• $30 for unlimited family text messaging
• $90 for 3 lines of data
• Total: $220 per month or $73 per person.

At the end of two years, it would have cost you a total of $1,952 to buy your son a Verizon iPhone 4S with a two-year contract with the least expensive family plan, compared with $1,369 for the same period of time on the Virgin Mobile prepaid service.

Essentially, for what it would cost you to add another data plan to your existing service on Verizon Wireless, you can get your son 300 voice minutes, unlimited text messaging, and 500 megabytes more of data each month. In my opinion, that's a bargain.

I would say the cost comparison makes the Virgin Mobile option for your situation a clear no-brainer. (The one caveat being that you live in an area where you can get Virgin Mobile coverage, which is essentially the same as Sprint Nextel's network coverage. If you don't get Virgin Mobile service or the service really stinks, then the price comparison doesn't matter, since getting service is the most important criteria for selecting a provider.)

Keep in mind that the iPhone is more expensive than other smartphones Virgin Mobile sells. For example, Virgin Mobile also offers the HTC Evo V 4G for $300. It's a Google Android phone, and it uses the same service plan as the iPhone 4S. If you buy this device, you'd save even more money.

That said, a full-priced iPhone is still a good investment given that these devices hold their resale value better than any other smartphones on the market. So if you get your son an iPhone 4S now, and Virgin Mobile gets the iPhone 5 when it comes out, he'll still be able to make back some money if he sells his older iPhone. Today a used iPhone 4S today sells for around $400, or about two-thirds of the cost of a new one. And the previous generation devices, the iPhone 4, can fetch around $250. That price isn't bad considering that the iPhone 4 is now two years old.

The only other thing I'd mention to you is that Verizon is expected to announce new pricing for its wireless services next week, including the much-anticipated family data plan. I don't know how much Verizon will charge for this service, but my guess is that it will still be more expensive than an individual prepaid account on carriers like Virgin Mobile.

Still, it may be something to consider if you and your husband don't use a lot of data, or if you think your son will be consuming most of his data in a Wi-Fi hotspot. That said, I wouldn't hold my breath for Verizon to introduce a deal that will really save families money. When Verizon's chief financial officer recently discussed the company's upcoming data plans at an investor conference, he said the purpose of the new pricing was to drive up revenue.

I hope this advice was helpful. And good luck!

Should I wait for the iPhone or buy the Lumia 900?

Hi Maggie,
My AT&T contract is up. I currently have an iPhone 4, which is still working perfectly fine. But I REALLY think the new Lumia 900 is amazing. However, do you think it's worth waiting to see what the new iPhone or the new Windows phones have in store? I heard there will be more Windows Phones in the fourth quarter.

Thanks,
Stavale

Dear Stavale,
I am in the same predicament. As some loyal Ask Maggie readers may recall, my contract with AT&T ended this spring. And I've been trying to figure out which new phone I want to get. I've been an iPhone user for a long time, so I really want to see what Apple will introduce next. And since it's already June, I feel like I can suck it up another few months.

So here's my advice for you. If you really like the iPhone platform and you are considering getting another one, then just wait. The new iPhone is likely to operate on 4G LTE, and it's probably going to be loaded with some updated features and functionality. At the very least, I'm expecting a better screen and better camera. And I am also expecting some cool enhancements to iOS. In fact, we will likely get a better sense of what those new software features may be at Apple's Worldwide Developer Conference otherwise known as WWDC in San Francisco next week.

But as you mentioned, Apple isn't the only handset maker gearing up for new product introductions. The holiday season has become an important release window for new smartphones. So I expect to see Google Android and Windows Phone manufacturers introduce new devices in the third and fourth quarters. In fact, Nokia has moved its annual Nokia World conference to September from October. So there's a good chance the company may introduce new Windows Phones then. Of course, it's hard to say whether these new devices will be flagship high-end smartphones for the U.S. market or more entry level devices for Europe and the rest of the world.

But if you don't absolutely need to get a new smartphone right now, then it doesn't hurt to wait a little bit longer to see what other devices will be introduced. Nothing bad will happen if you resist the urge to upgrade now when your current device is operating just fine. But if you pull the trigger too soon, you may regret it in six months when you see cooler phones in stores. By that time, you will have blown your device subsidy, and you'll have 18 months left on your contract. Be patient, my friend.