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The Cost Of Keeping Up With The iPhone

Canadians love smart phones and especially Apple’s iPhone. Many of us love the phone so much that every time a new model comes out we go out and upgrade. Keeping up with technology at this pace however can be a costly affair. There are two ways to own the new iPhone 5, either you buy it on contract with a carrier like Bell or Rogers or you buy it unlocked straight from the Apple store.

To compare the two purchase options let’s call the people that buy a phone and use it for the duration of the 3 year contract the “iKeepers” group. Those that upgrade each year and sell their old phone are the “iTraders”.

To compare the cost to each group, I’ve included a couple of tables below that show the cost associated with going through 4 upgrade cycles. I used historical prices for past iPhone releases to get the current data. Note that I am only comparing the cost of the hardware since there are such a huge number of different voice & data plans. Besides, it doesn’t matter if you buy an unlocked phone or a carrier subsidized one, you need a plan regardless!

Related: Portfolio Update – Sold 50% Of My Apple Shares For A 93% Gain

The iKeepers

When buying and holding, the purchaser keeps their original phone for 3 years and then sells it when the contract is up after unlocking it. The resale price is an average of prices I found on craigslist, less the $50 unlock fee charged by the telecom companies.

Year Model Contract Price Resale Value Case Cost
2009 3GS 32GB                $299.00                       -           $35.00            $334.00
2010 4 32GB                          -                         -                  -                       -  
2011 4S 32GB                          -                         -                  -                       -  
2012 5 32gb                $279.00 3GS – $75.00         $35.00            $239.00
 Total  $573.00

The iTraders

The iTraders buy the latest iPhone model each year and sell their old phone privately. With the iPhone 5 recently launched, the iPhone 4S models are being sold privately for between $400 to $550. Note that this group will need to purchase a new case for each phone.

Year Model New Price Resale Case Cost
2009  3GS 32GB        $799.00    $475.00    $35.00       $359.00
2010  4 32GB        $759.00    $434.00    $35.00       $360.00
2011  4S 32GB        $799.00    $475.00    $35.00       $359.00
2012  5 32gb        $799.00    $35.00       $834.00
 Total  $1,912.00

Comparison

As you can see, it costs much, much more to buy an unlocked phone and upgrade it each year. The iTraders group will spend an extra $1,339 for the privilege of having the latest and greatest gadget.

Also keep in mind that upgrading each year opens you up to additional purchases such as services and accessories.

Unlocked phones certainly do offer more flexibility as they can be used on any carrier network and overseas. You also don’t need to sign up for a contract.


Financing

Like many retailers, Apple provides a financing option for those who can’t afford to pay cash for their products. Since the iTraders need to incur large 1 time cash payments, they may be more likely to use financing. At a whopping 19.99% this can translate into more debt down the road.

Related: The Basics Part 1 – Debt

Wrapping It Up

Now that we know the true cost of each strategy, buyers can make better informed decisions. If you need flexibility or are going to be traveling quite a lot, an unlocked phone may make sense. If you are cost conscious and are not concerned with keeping up with technology the Buy & Hold strategy would be more advantageous.

Remember, high end smart phones should be treated as luxury items due to the high costs associated with them over time.

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3 Responses to "The Cost Of Keeping Up With The iPhone"

  1. Thinking says:

    The comparison, to make sense, should be purchasing the phone outright, year 1 and keeping it for three years (average length of telco contracts. Using whichever carrier gives you what you need for the least dollars.

    Then to a contract (3 year) price and staying locked in to that plan for the duration. That is a cost to cost, apple to apple comparison.

    The one device for three years on contract compared to the upgrade each year no contract, is not a relevant comparison from a financial perspective.

  2. iUsed says:

    You also need to consider that a clever iTrader will not necessarily buy new iPhones each time but rather used iPhones one generation behind the newest. With this in mind, keeping up with technology may be a solid investment if you’re upgrading each time for a smaller amount. For example, I recently traded my used Android phone for a new model (sold for $250, bought at $300) which will have a far better resale value in the next year.

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