If you've been holding off on buying an iPhone for fear of being trapped into an expensive two-year contract with AT&T (T), Verizon (VZ), or Sprint Nextel (S), you're in luck. Leap Wireless (LEAP) subsidiary Cricket has a new prepaid plan with no strings.
The savings look impressive at first blush. But be warned: You'll sacrifice plenty of what makes the iPhone great in your quest to cut back on your phone bill.
Brrrrring! Savings Calling!
First, the good news. Cricket gives prepaid customers two prepaid options for Apple (AAPL) handsets. An eight-gigabyte iPhone 4 runs $399.99; the more modern 4S runs $499.99 and comes with 16 gigs of storage capacity. Both phones are eligible for the carrier's $55-per-month unlimited text, talk, and data plan.
No service or overage fees apply, which is what makes the deal seem so awesome when doing the initial math. Here's a closer look:
Contract Cost Per Year
Sources: Cricket Wireless, MSN Money.
Bear in mind that Cricket estimates the average customer pays AT&T, Verizon, and Sprint $2,775 over two years for iPhone service. Dividing by two amounts to the $1,387.50 you see in the table above.
But this may be a lowball figure. Family plans can run $200 or more per month. Sign up for a prepaid plan, bank the fees you might otherwise pay to a carrier, and before long, you could have enough to pay for a sweet family vacation.
This Cricket Can't Leap
There is a reason some users actually might want to pay hundreds more for service. All three of the major carriers have what they call fast 4G networks active and available to iPhone users. In truth, they aren't really 4G as defined by technical standards -- but they aremuch faster than Cricket's 3G alternative.
Plus, you can expect the divide to widen soon. Verizon and AT&T both have faster 4G LTE networks in place now, but only a smattering of smartphones have taken advantage. And most of those models are based on Google's (GOOG) Android mobile operating system.
All that could change on June 11, when Apple is expected to announce a new handset -- the long-awaited iPhone 5 -- with a built-in radio for communicating with the fastest LTE networks. Think Cricket's 3G network looks slow now? Wait until the new iPhone starts streaming 4G LTE.
P.S.: Your Phone May Suddenly Lock Up
Cricket presumably makes up for this flaw by allowing for unlimited data usage, a ploy that AT&T and Verizon both tried and then pulled upon realizing that game-playing, video-streaming users could consume far more than they expected. Other than Cricket, only Sprint has proven gutsy enough to offer unlimited data to subscribers.
Yet there is a catch. Cricket has what it calls a "fair use" limit at 2.3 gigabytes of data per month, after which the network is permitted to throttle back the speed at which you can send and receive data.
For its part, Cricket is downplaying the chances of throttling occurring. A table at the company's website depicts the various types of activities that consume data, topping at 650 megabytes for one hour of streaming standard definition video.
And that would be fine, except that games and high-definition video are what data consumers spend the most time with. Last year at this time, Nielsen found the average iPhone user was consuming 492 megabytes of data per month, about twice as much as the year prior. Assuming growth has continued apace, the average iPhone user is now consuming a gigabyte or more per month, making Cricket's limits not quite as generous as they seem.
Phone Plan vs. Minicomputer Plan
Therein lies the problem. Apple's iCandy isn't really a phone; it's a data-hungry digital Swiss Army knife. What's the point of having one if using it on a limited network stunts the features that make it so desirable?
%Gallery-152931%Consider Siri. The voice-activated assistant present in the iPhone 4S has prompted owners of the device to double their data usage when compared with those who have the more pedestrian iPhone 4.
Cricket users would still have access to Siri, of course, but data limits would make the app far less useful than it otherwise might be for major carrier subscribers with access to higher-speed, higher-capacity networks.
Cricket's prepaid iPhone plan offers hundreds and perhaps even thousands in savings. Just don't sign up expecting the same experience you'll get from any of the major carriers. You won't get it.
Motley Fool contributor Tim Beyers owned shares of Apple and Google at the time of publication. Check out Tim's portfolio holdings and past columns. The Motley Fool owns shares of Apple and Google. Motley Fool newsletter services have recommended buying shares of Apple and Google, as well as creating a bull call spread position in Apple.
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