The Math Behind Sprint’s “Cut Your Bill in Half”

I’m guessing you’ve seen the commercials.  A slow-mo shot of some guy with a reciprocating saw cutting a stack of papers in half.  And then the tagline: Bring in your AT&T or Verizon bill to Sprint and we’ll cut your rate plan in half!  It’s a powerful message.  These days, carriers are doing everything they can to get you to switch to them, everything from giving you deals on more data to paying your early termination fees.  Sprint wants everyone to know that they are playing this game too.  However, once you start to do the math, you find that this deal isn’t anywhere near as good as it sounds…

Let’s start with the pitch from Sprint.  All you do is show them your most recent bill from your rate plan and turn in your phone, and then pick out new service and devices from Sprint.  Sprint will even buy out your contract.  The new service you get includes unlimited talk and text and the same amount of data you got before.  It sounds like a great deal, and at first sight, it is.  However, there’s a few things up there that make it a little more complicated.

The first is the word “rate.”  Sprint says they’ll cut your rate plan in half.  In order to understand this, you first have to understand that there are two main types of cell phones plans available today.  The first is the old model, the rate plan.  This is probably the one you’re most familiar with (and probably the one you have).  You buy a phone for around $200, then you have a two-year contract.  At the end of the two years, you are able to get a new phone (for another $200) and sign another contract.  This model has worked well for years, but carriers are currently moving away from it.  The new model is a no-contract plan.  Here, you pay the full cost of the device up front (around $650) and then have a much lower, no-contract plan that you can leave at any time.  If you don’t want to pay the $650 up front, you can pay nothing down and around $27/month for two years for the phone (this adds up to around $650).  Now here’s the thing: after two years, your total cost (including both the phone and service) is really about the same.  So why is the no-contract better?  At the end of two years, if you like your phone and decide you don’t want an upgrade, your bill goes down by that $27.  On the flip side, if you want to cancel your service or get a new phone before two years is up, you can just pay off whatever you owe on your phone and start over.  So now that you understand the difference between these two types of plans, we can get into Sprint’s deal.  Sprint is offering to cut your rate plan in half in exchange for a no-contract one.  This is where the math gets hairy.

For comparison’s sake, I’m actually going to compare Sprint’s rate plan with Sprint’s no-contract plan, instead of dragging AT&T and Verizon into this (most carriers’ rates are pretty comparable anyway).  Let’s assume we have a family of four with unlimited talk and text and a total of 8gb of data – 2gb/person.  Sounds reasonable.  According to Sprint, the cost of the shared data is $70/month, and then there’s a $40/month fee for each line.  That brings the total cost to $230/month.  No wonder people want to cut their bill in half!  Well then let’s do it.  With Sprint’s new, no-contract plan, the cost of the data is the same, $70/month.  After that, it’s only $15/month, per line.  That brings the base cost to $130.  Apply the Cut Your Bill in Half promotion, and it drops to $115.  There’s no denying it, $115 is a whole lot cheaper than $230.  But there’s one more catch.

In order to get the promotion, you have to turn in your old devices from AT&T or Verizon.  This means you then have to get new phones.  No big deal, you say, that’s just $200 each.  Wrong.  Remember, the no-contract plan forgoes this old model of device pricing.  Instead, you’d have to pay $650 each – x4 makes that $2600!  OK, OK, let’s back up a little.  No one’s going to pay that much for phones.  Let’s go to the monthly device payment.  According to Sprint, this is around $27/month per device.  Multiply that times four, add it to the $115 for service, and you get… $223/month.

Congratulations, you’ve saved $7/month!  Not quite as good as the pitch, huh?  Don’t feel too bad, cell phone bills are tricky.  I’m not trying to call out just Sprint here, all the carriers do it.  Bills used to be fairly simple, but the move to the new, no-contract model of billing is really making things more difficult for customers.  Honestly, it’s really, really expensive either way (see this post).  I guess this all goes to show that you have to be careful and read up on these plans before you go switching.  Honestly, though, how could Sprint make any money if they really cut everyone’s bill in half?  ••

Disclaimer: I haven’t talked to any Sprint representatives about this stuff, but all the numbers in this post came directly from either Sprint’s website or a flyer I picked up in one of their stores a few months ago.  Maybe there’s something I’m missing here, but as far as I can tell from their website, this is how the plan works.  

One more thing: I’ve ignored Sprint’s entry level “5 lines for $100” promotion because it’s only an entry level price.  Almost all networks are offering this sort of thing now, and it really is a good deal for the year-ish that it’s available.  However, after that, the price will go up, and that final, long term price is what I wanted to reflect in this post.

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