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Customers will no longer be eligible to receive promotional pricing at 20 months. They need to fulfill all 24 months of their two-year contract before they will be able to buy a new phone at the lowest cost. AT&T says that people will still be able to share their upgrades as long as the upgrade is used on the same account and within the same device category (e.g., smartphone or feature phone).
After customers have completed six months of their contract, they'll be eligible for a small discount on new gear, but in order to get it they'll have to sign a new two-year agreement. AT&T didn't say how much this discount would be, but don't think it is anything like the advertised price of new phones. You'll still be on the hook for the lion's share of the new device's cost.
Remember, the prices that carriers charge for their devices are subsidized. AT&T might sell the iPhone 5 for $199, but it really costs much, much more. Most new smartphones cost between $550 and $650 unsubsidized. AT&T offers the iPhone 5 for $199 to convince you to sign a two-year contract, during which it recoups the other $449 of the iPhone 5's cost through service fees.
[ Want a new iPhone 5? See iPhone Trade-In Could Aid Apple In Emerging Markets. ]
AT&T said of the change, "This aligns device upgrade eligibility with our standard two-year wireless agreement." Verizon Wireless made the exact same change to its upgrade policy in April.
Of course, AT&T pointed out that customers are still able to take advantage of its trade-in program. AT&T is offering at least $100 for old smartphones that are traded in when customers buy new devices. The trade-ins have to be newer than three years old, and have to function properly.
AT&T noted that customers can upgrade their device at any time as long as they don't mind paying the full retail price. AT&T customers also can use any unlocked GSM handset on AT&T's network.
Who does this policy apply to? Any customer whose agreement expires in March 2014 or later. That means if you bought a new iPhone 5 in September 2012 and expected to be able to grab a new device in May 2014, you're wrong. You'll have to wait until September 2014.
Here's why this policy change stinks. Although the difference of four months might seem insignificant, it isn't. By forcing customers to sit in their existing contracts for another four months, AT&T is guaranteeing itself that cash. It is raking in another four months of revenue per customer between device upgrades. That will add significantly to its already generously padded profits.
What's doubly frustrating is to see AT&T and Verizon moving ahead with customer-unfriendly policies while Sprint and T-Mobile attempt to do the opposite.
T-Mobile recently dropped contracts altogether, and changed the way it accounts for device subsidies so everyone knows how much they are paying for their device and how much they are paying for their service. T-Mobile sees itself as a challenger, and in many ways it is. AT&T and Verizon might not have anything to worry about right now -- their networks are much bigger -- but if T-Mobile's coverage is ever able to rival the two biggest market players, its more consumer-friendly policies could pay off big time.