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Should You Buy Into T-Mobile's Jump?

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For a carrier focusing so heavily on transparency and communication with consumers, T-Mobile's (NASDAQ: TMUS  ) freshly unveiled Jump program is a bit confusing. On the surface, it sounds great: two smartphone upgrades every year instead of one smartphone upgrade every two years.

The devil is in the details. Should you buy into Jump?

How it works
To sign up for the program, subscribers will pay $10 per month. Included in the service is a comprehensive handset protection program (i.e., insurance) that covers things such as malfunction, damage, loss, and theft. The real kicker is the upgrade frequency that's included.

T-Mobile says the fee is only $2 more than what most people pay for handset protection alone. For reference, AT&T and Verizon Wireless both charge $7 for their protection programs, and Sprint Nextel prices at $8. All four carriers outsource the insurance underwriting to Asurion.

Six months after initial enrollment, customers can upgrade their smartphone twice every 12 months. To do so, customers just trade in their device and any remaining finance payments owed on the older device are eliminated, and they then purchase a new device for the listed upfront pricing with the associated financing plans. Devices that are traded in need to be in "good working condition," and there is a $20 to $170 deductible if there's any damage. There's no mention of receiving any residual value back.

But at what cost?
Let's look at it from a T-Mobile customer's perspective. Any smartphone user who's interested in upgrading this frequently faces two alternatives, with the first being Jump. The second choice is to simply buy smartphones at full retail and sell them to another user in six months after depreciation. I'll exclude service costs for this comparison.

To start, let's say you bought a flagship smartphone such as Apple's iPhone 5, which costs $146 upfront in addition to monthly payments of $21. You'll pay $60 in Jump fees before the first upgrade eligibility. For the first six months, that's $332 in total costs before making the jump to a new device.

Alternatively, you could purchase the same entry-level iPhone 5 for $650 and simply sell it after six months if you wanted to upgrade. Priceonomics did a study last year on smartphone resale value and found that on average, smartphones lose 25% of their value in the first six months (iPhones tend to hold their value better than other devices.) That suggests you could sell a 6-month-old iPhone 5 for $488 and lose only $163 in depreciation. Recent completed listings on eBay back up this theory, as does a Piper Jaffray study on smartphone resale values. That's half of what you lose in the Jump scenario.

The figures for other flagships such as Samsung's Galaxy S4 or HTC's One are similar (both have the same pricing). Under Jump, the first six months cost $280, while depreciation on the $580 retail price would be close to $145 -- again, roughly half as much.

Of course, with Jump you also get the insurance bundled in, but that still doesn't fully explain the cost difference. You could purchase standalone handset protection from T-Mobile for $8 per month, or $48 for six months. There's also the added convenience of an easy trade-in instead of having to sell your device on eBay or Craigslist, but how much is that convenience worth?

Look before you jump
As it stands, Jump isn't all that great of a deal. Customers who are interested in semiannual upgrades are better off just reselling their phones when they want to upgrade. You don't even have to necessarily pay full price upfront, since T-Mobile still offers financing plans; you'd just sell your device and pay off the balance when you're ready to make the switch.

Jump's incremental $2 per month over standalone insurance sounds enticing, but it appears that the carrier may profit on the trade-in once it turns around and resells the used device, since it's not giving back any residual value.

Don't make the Jump.

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Read/Post Comments (5) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 14, 2013, at 5:42 AM, prginww wrote:

    For what it's worth, I've been with T-Mobile USA for almost 10 years; before that, I used T-Mobile in Germany while living there. I've received excellent customer service in all areas and never did I feel cheated. Bottom line: don't just decide based on this article. Contact T-Mobile (by phone or in their store) and ask pertinent questions. This "jump" thing is not for me, but may be for others.

  • Report this Comment On July 14, 2013, at 6:28 AM, prginww wrote:

    Truth is. these are all money making schemes designed to separate consumers from their money. It was NEVER intended to benefit the customers. The fact is, T-Mobile overcharges for their phones. A Galaxy S III at Boost is $399, while TM charges $499 for the same model phone.

  • Report this Comment On July 14, 2013, at 8:45 PM, prginww wrote:

    The problem with your analysis is that you are assigning the full $10 a month to the cost of the new upgrade program, when most people who buy these expensive smartphones are already paying $7-12 in monthly insurance. So this is not the correct economics for most customers.

  • Report this Comment On July 15, 2013, at 3:42 PM, prginww wrote:

    I'm with iMissGermany on this one.

    T-Mobile has great service, and also, this plan is available on the month-to-month programs, which means no contract.

    The only issue I had was poor coverage at my desk when I was promoted at my company. I stopped at the T-Mobile store, and they opened a service ticket to fix the coverage issue. The phone started working at my new office within a week. No joke.

    I'm not sure how they fixed it so quickly, but I remained real satisfied.

    I had a much worse issue with AT&T at my home. I had to be outdoors for the phone to work, and make calls. Familymembers had the same issue. They also went to an AT&T store to see if anything could be done. NOTHING was ever done. Now whenever they visit, we jokingly tell them we can set up a tent in the corner of the back yard, where AT&T has coverage.

    Don't get me wrong, I don't want to sign a contract with AT&T if the coverage doesn't work. It defeats the purpose of having a wireless, and from what I've read, the company rarely lets people out of their contract.

    As for the price of the phone on Boost, well, Boost runs on a different network technology. It isn't the same phone or service. It's like comparing apples to oranges. Boost also claims unlimited web on their plan, but it's actually 2.5GB of data. So be sure to read the fine print in Boost ads.

    The wireless industry is real complicated, everyone seems to want to give you a deal on the handset or device, but over two years, the cost of a bill can easily exceed the discount on a phone. Make sure comparisons are accurate.

  • Report this Comment On September 18, 2013, at 1:04 AM, prginww wrote:

    Good article and advice overall.

    The only snag is it assumes that the subject is going to buy iPhones only.

    1. These are "best case scenario" devices, financially. (Most Androids plummet in value, as my HTC One seems to have...)

    2. Someone who upgrades every 6 months won't be exclusively using iOS devices, because these are refreshed annually.

    My 2c. Thanks!

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