Guest Post: The Curse Of New Every Two

The wireless industry in America runs on a two-year system. When customers sign up, they typically agree to a two-year contract, with penalties of up to $200 for early termination. In exchange for this commitment, customers receive a discount, sometimes steep, on a mobile phone. Carriers base this format on the theory that a customer’s monthly payments will eventually cover the cost of the phone.

For years the system worked well enough. Customers would sign a new contract every two years, trading in their flip or candybar phones for newer models. Sure, some phones were a bit cooler looking than others, but there wasn’t a huge difference among them. Smartphones, however, changed the environment. Why, then, haven’t carriers changed the way they sell phones and plans?

The first major issue we encounter is selection. Again, with flip and candybar phones there might have been minor differences, but for the most part they performed similarly. This is not the case with smartphones. Different smartphones have different form factors, different operating systems, different email delivery methods, and different application selections. While that can mean more functionality, it can also mean a greater chance of picking a phone that you end up not liking.

Lately, the two-year contract has presented an even greater conundrum for smartphone users. Like many manufacturers, Research In Motion has apparently adopted the one-a-year strategy for its smartphone releases. The BlackBerry Bold 9700, released in November 2009, came a year after the Bold 9000. The Storm2, released in late October 2009, came just less than a year after the BlackBerry Storm 9530. It appears the Tour, released in July 2009, will get an update sometime in March, just eight months after the original’s release. Even the Curve 8900 will get a quick update, as the 8910 appears headed for at least one U.S. carrier.

The problem with this scheme is immediately apparent. Customers who bought the original Storm in November 2008 still had a year left on their contracts when RIM and Verizon released the Storm2. Tour users might be even more upset, as they will still have 16 months on their contracts when the Tour 9650 hits CDMA carriers. This raises the question of why we still operate on the two-year contract system when the gadgets are released far more frequently?

When we look at the retail price of these devices, the answer becomes apparent. If you bought the Tour back in July, accepting Verizon’s subsidy, you can still upgrade to the 9650 when it is released. Verizon will not offer you another subsidy, though. Instead they’ll charge full retail price for the device, which can run between $400 and $600, and probably sitting on the higher end for a device like the 9650. This is more representative of the price the carrier would charge if it did not offer the exchange of a two-year commitment. Who, then, would pay $400 to $600 per year to upgrade devices?

Apple seems to have realized this. They sold the original iPhone in the above-mentioned price range, but when it came time, a year later, to release the iPhone 3G, they worked with AT&T to offer a subsidy. There might have been other reasons behind this, but one issue had to have been the ability of customers to pay this much for a gadget as it receives yearly upgrades. By cutting the price to $200 they’ve made the upgrades more affordable, though they’ve made it more difficult by having a contract in the equation.

Companies like Apple and RIM wouldn’t continue this practice if it didn’t work, so we can assume that the device-every-year scheme will continue for the time being. It might annoy customers who bought the device one year and miss out on the follow-up the next. Considering the alternative, purchasing the device at full-price, it might be the best format we have. That won’t stop my annoyance, though, at having a Tour for the next 15 or 16 months, while others tote around the 9650.

Submitted to RIMarkable by BBGeeks.com

This is a guest post written by Joe pawlikowski. Joe is the Senior Editor for BBGeeks.com where he tries to help you make sense of all things Blackberry. In addition to industry related news BBGeeks.com offers detailed information of BlackBerry Service providers in Canada and the United States.

  • Sam K

    The author makes a good argument except with Verizon you can still get a new phone at the subsidized price every year even when you’re on a 2 year contract. This is part of their “Worry Free Guarantee”. So the people who bought the Storm 9530 in Nov 2008 for $200 with a 2 year contract were able to upgrade to the Storm2 9550 in Nov 2009 for $180 with 2 year contract and their contract would be extended to Nov 2011.

    Here is the text directly from Verizon’s website.

    “What do I have to do to get a new phone with Annual Upgrade?
    You must be registered for My Verizon, be on a calling plan of $49.99 or higher and have completed at least 1 year of a 2-year contract and agree to renew for an additional 2 years in order to get a new phone at a promotional price. It’s as easy as that. ”

    Here’s a link to that information.
    http://support.vzw.com/clc/faqs/Wireless%20Service/faq_worry_free_guarantee.html?grp=3&faq=15

    The only downside to this is that the annual upgrade resets the clock on the additional “New Every Two” discount that Verizon gives customers when they renew every 2 years. In other words, you won’t get the “New Every Two” discount when you upgrade annually and you won’t be eligible for it until 2 years after your last upgrade. The “New Every Two” discount is only $30 or $50 depending on your plan which isn’t much compared to the discount they give on Blackberries when you renew your contract.

    Here is the text from Verizon’s website about how the annual upgrade affects their “New Every Two” discount program.

    “Is this replacing New Every Two?
    No, Verizon Wireless is providing an additional program to upgrade your phone. By taking advantage of the Annual Upgrade, however, your New Every Two calendar will restart. ”

    Here is a link to that information.
    http://support.vzw.com/clc/faqs/Wireless%20Service/faq_worry_free_guarantee.html?grp=3&faq=16

    And here’s a link to Verizon’s FAQs about their “New Every Two” program.
    http://support.vzw.com/clc/faqs/Wireless%20Service/faq_new_every_two.html

    Some people might ask “does this add 2 years to end of your original contract end date?” The answer is “no”. So if you do an annual upgrade every year, your contract end date is always 2 years after you do the annual upgrade.

  • garvey

    Long time Sprint customers also benefit from a once-a-year swap program. The “Premiere” membership, along with an unmatched family plan keep me a loyal Sprint customer.