Apple changes the cellphone rules

The cellular companies are losing some of their hold on our cellular services and that’s a good thing.

Much of this began when the FCC disapproved the merger of AT&T and T-Mobile. As predicted by the FCC and the consumer groups opposing the merger, this has resulted in more competition.

Left on its own, T-Mobile, a distant fourth, changed the pricing model by offering a lower monthly service rate and selling phones separately, with some of the cost spread out in 24 monthly payments. This was a much more transparent pricing plan, and now most of the other carriers offer something similar.

Previously, the carriers appeared to subsidize the purchase of a new phone, charging $200 or $300 for a phone that might retail for $600 or $700. But in fact, they charged a higher monthly payment for service, typically about $40 to $50, about half of which was for the cost of the phone. At the end of the two years, if you didn’t upgrade to a new phone, the monthly rate would remain the same, while the carriers raked in the extra profits.

But now Apple has made a move that reduces the carriers’ influence even more. Apple has made its new iPhones compatible with all networks and sells them unlocked. So if you buy a phone from Apple rather than from your carrier, it will work with every other carrier.

All of this can free you from a long-term commitment, so you are no longer tied to a contract with your carrier. You are free to switch to a different carrier anytime. In fact, Apple could possibly help you select your carrier, providing price comparisons, when you buy your phone at an Apple store or online.

Taking a page out of the car-leasing business, Apple will now lease you a new unlocked iPhone, usable on any carrier, for a monthly payment beginning at $32 a month for a 16GB iPhone 6S or up to $45 a month for 128G iPhone6S plus. This includes the AppleCare+ service and warranty, and gives you a new phone every year for a continuing payment. This is a brilliant move, because it masks the iPhones’ high costs, just as it faces competition from more low priced phones.

We are slowly but surely getting closer to a model where the phone is the car and the cellular service is the gasoline. You need not stick with just one brand of cellular service or gas.

Expect to see the carriers becoming even more competitive. I recently changed to Verizon’s new simplified “Verizon Plan XL,” which is a good example of a more common sense plan that lowered my rates and provided more data.

In this plan, I pay $20 per phone that I bring (and $40 if it’s still being subsidized by Verizon), plus $80 for 12GB of data. Once the subsidy ends, the charge drops from $40 to $20. My family uses five phones and one iPad with LTE. Data is shared among all six devices on this plan. It’s a good deal and something similar to the other carriers’ new plans. My monthly bill now runs $290. Just two years ago I was paying $225/month for just two phones and 3GB of data.

Of course, we are using more data than ever and it will only go up. If I send a 1GB image to my wife and she sends it to my son and daughter-in-law, the data usage for this family plan is actually 5GB, since it counts each time one of us receives and sends the file. In other words, data usage adds up fast, particularly in these family accounts.

In spite of progress, the carriers still retain some consumer-unfriendly habits. Like the old voice plans, they still force us to estimate our data usage and penalize us if we go over. That means most of us will buy more data than we might use.

Verizon charges $15 per GB if a customer goes over their allotment, two to three times the cost of buying data on a plan. A better idea is to sell data on a continuously decreasing cost based on how much is used, eliminating the need to monitor usage.

Another scam from some of the carriers is their phone insurance plans provided by Assurion, a company with thousands of negative online reviews.

I insured my grandson’s iPhone 5c based on a sales pitch from the online Verizon salesman when buying the phone. It cost $7.95 per month. When I had to use the insurance, I learned the deductible was $140, something the salesman never mentioned. To add insult to injury, the replacement phone was a poorly refurbished unit whose battery drained in three hours. Assurion replaced it a second time, but I immediately cancelled my insurance and bought Apple’s AppleCare+ that cost $100 and $90 to replace the phone, with no monthly charge.

Now that we’ve seen how effective Apple has been in wresting control of cellular from the carriers to our benefit, let’s see if it can do something about the cable companies. The new Apple TV is the first step in weaning us away from expensive monthly cable bills, replacing it with purchase on demand, so we pay only for what we want to watch.


Baker is the author of “From Concept to Consumer,” published by Financial Times Press. Send comments to Comments may be published online or as Letters to the Editor.

by Phil Baker