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Tech Lab

Pay full price for iPhone, avoid contract

A woman used an iPhone at a Verizon store in California.

Paul Sakuma/AP

A woman used an iPhone at a Verizon store in California.

Apple Inc. has made a lot of daring bets over the years. Now the maker of the iPhone is gambling that millions of American consumers can do a little simple math.

Apple has struck deals with the cellphone carriers Virgin Mobile and Cricket Wireless to offer the iPhone 4 and 4S on a no-contract basis. Instead of being locked into 24 monthly payments, customers will pay month to month and can drop the service whenever they choose, with no financial penalty.

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The monthly fees will be considerably lower than those charged by contract plans, but Cricket and Virgin will charge full price for the iPhone itself — a hefty upfront payment of as much as $649.

With such a high price for the hardware, I don’t expect to see lines forming outside Virgin Mobile shops when the iPhone arrives on June 29. But the consumers who do show up will probably have done the math. The no-contract offerings, especially Virgin Mobile’s, could save them hundreds of dollars, despite the phone’s cost.

Going no-contract is a no-brainer for Apple. No-contract phones command nearly a quarter of the US market, up from 17 percent in 2008, according to the Framingham-based market research firm IDC Corp.

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More to the point is the competition from phones running Google Inc.’s Android operating system.

No-contract carriers used to sell only the cheapest entry-level phones. Then the lousy economy attracted millions of relatively affluent bargain hunters looking for lower monthly rates, but willing to pay extra for a smartphone of decent quality. So the no-contract companies now offer top-drawer Android smartphones. Apple was bound to make a move to protect its market share.

Today, three of the nation’s four top cellphone carriers — Verizon Wireless, AT&T Inc., and Sprint Nextel Corp. — offer the iPhone 4S for $199.99, a $450 discount on its list price. But customers must sign contracts that lock them into two years of relatively steep monthly payments, which cover the phone’s cost and then some.

Verizon is the priciest of the bunch. For a plan that provides 450 voice minutes, unlimited text messages, and 2 gigabytes of data, you’ll pay $89.99 a month, or $2,159.76 over two years. Add in the cost of the phone and you’ll pay $2,359.75. Later this month, Verizon’s new Share Everything pricing plan will elevate the cost of such a plan to $100 a month, with unlimited voice minutes. That would bring your two-year bill to just under $2,600.

Of course, you can get an iPhone from AT&T or Verizon without signing a two-year contract. Just pay full price for the phone and you can cancel the service at any time. Since you pay for the phone, you get a lower monthly rate, right?

Wrong. These companies will still charge the same.

By contrast, Cricket Wireless and Virgin Mobile offer substantial monthly discounts. Cricket charges $499.99 for an iPhone 4S and $399.99 for an iPhone 4. The service plan costs $55 a month for unlimited voice, text, and 3G data service. Over two years, that comes to $1,819.99 for an iPhone 4S.

Virgin Mobile charges $649 for the iPhone 4S, or $549 for the iPhone 4, but gives you 300 voice minutes and unlimited text and data service for just $30 a month, for a total of $1,369 over two years for the iPhone 4S. That’s about $1,000 less than the nearest Verizon plan — the price of a nice MacBook Air laptop.

Cricket is an independent company but has a roaming arrangement with Sprint, so it promises decent coverage. Virgin Mobile is actually owned by Sprint and uses that company’s nationwide network, so you can count on good service there. Both carriers give you 30 days to return the phone if you’re not satisfied.

There’s got to be a catch, right? Well, yes. For one thing, Cricket will not be selling iPhones in the Boston area, although Cricket phones bought elsewhere will work here.

Also, both companies “lock” their phones. That means you can’t use the phone on a different carrier. If you halt service, you’ll lose your phone number after 30 days with Cricket, or 90 days with Virgin. To resume service, you’ll need a new number.

As for “unlimited data,” both Virgin and Cricket “throttle” the speed of downloads beyond a certain point. Pull down more than 2.5 gigabytes per month on Virgin, or 2.3 gigs on Cricket, and further downloads will become painfully slow. But the average user won’t get anywhere near the quota.

Still, for those with the upfront cash and a knack for fifth-grade math, these no-contract plans are the best iPhone deals on the market.

Hiawatha Bray can be reached at
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