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In a previous article I discussed the possibility of cell phone carriers no longer paying subsidies for new phones. The carriers took the first step towards this possibility a few months ago when they started offering no contract smartphone plans. Under these plans customers would pay full price for a new phone but would not be locked into a 2-year contract. They would also have lower monthly payments

Now it appears the carriers have realized that consumers' main motivation for ditching contracts is the ability to upgrade their phone at any time. T-Mobile (NYSE:TMUS), AT&T (NYSE:T), and Verizon (NYSE:VZ) are now offering an alternative for those who cannot stomach spending $600 up front for a phone but want to upgrade more often than every two years. T-Mobile was the first to offer one of these accelerated upgrade plans. AT&T and Verizon quickly announced competing plans within a week of T-Mobile's announcement. Sprint (NYSE:S) does not currently have a competing plan.

In my previous article I concluded that T-Mobile gave customers the best value with its no-contract plan and should therefore see an increase in customers as a result. Let's do a similar analysis of the new upgrade plans to see which carrier will do best in the world of frequent upgrades.

For this comparison I chose plans from each carrier that are as similar as possible. T-Mobile and Verizon have unlimited calling and texting with 2GB of data; the AT&T plan has 3GB of data (there is no 2GB option).

So here is a breakdown of the new plans:

Carrier

T-Mobile

AT&T

Verizon

Phone cost

Full price broken down over 24 monthly payments (~$25/month)

Full price broken down over 20 monthly payments (~$32/month)

Full price broken down over 24 monthly payments (~$25/month)

Upgrade Frequency

2/year after first 6 months

1/year

Every 6 months

Fees

$10/month

None

None

Phone Plan

$60/month

$120/month

$100/Month

Conditions

Return previous phone in good working order

Return previous phone in good working order

Must have paid off half the value of the phone. Return Previous phone in good working order

Insurance

Included

$10/month

$8/month

Although Verizon and AT&T do not charge an extra fee to participate in the upgrade plan, their service plans are so much more expensive that the customer still ends up paying substantially more every month.

T-Mobile's plan also includes insurance that covers accidental damage, loss or theft of your phone. Equivalent insurance costs $10/month from AT&T and $8/month from Verizon. This makes the price gap between the plans even greater.

T-Mobile's plan also offers the most flexible upgrade schedule. After your first six months on the plan you can get your first upgrade, after that you can upgrade twice per year, not necessarily waiting six months between each upgrade. For example you could upgrade once after three months, then after nine months.

Verizon makes customers wait six months after each upgrade before they can upgrade again. However, they also have to have paid off half the value of the phone, something that would take 12 months making normal payments.

Finally AT&T will only allow customers to upgrade every 12 months.

In conclusion T-Mobile has clearly won this round of the carrier wars. The competing plans from AT&T and Verizon are both significantly more expensive and less flexible.

I would expect T-Mobile to gain some market share because of this plan. This should translate into long-term earnings growth and an increase in the share price.

Source: Which Cell Carrier Will Win Your Upgrade?

Additional disclosure: I am currently a Verizon customer but am strongly considering switching at the end of my contract.