Buy Into T MOBILE US INC (TMUS)’s Jump?

For a carrier focusing so heavily on transparency and communication with consumers, T MOBILE US INC (NYSE:TMUS)‘s freshly unveiled Jump program is a bit confusing. On the surface, it sounds great: two smartphone upgrades every year instead of one smartphone upgrade every two years.

The devil is in the details. Should you buy into Jump?

How it works
To sign up for the program, subscribers will pay $10 per month. Included in the service is a comprehensive handset protection program (i.e., insurance) that covers things such as malfunction, damage, loss, and theft. The real kicker is the upgrade frequency that’s included.

T MOBILE US INC (NYSE:TMUS) says the fee is only $2 more than what most people pay for handset protection alone. For reference, AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ) Wireless both charge $7 for their protection programs, and Sprint Nextel Corporation (NYSE:S) prices at $8. All four carriers outsource the insurance underwriting to Asurion.

Six months after initial enrollment, customers can upgrade their smartphone twice every 12 months. To do so, customers just trade in their device and any remaining finance payments owed on the older device are eliminated, and they then purchase a new device for the listed upfront pricing with the associated financing plans. Devices that are traded in need to be in “good working condition,” and there is a $20 to $170 deductible if there’s any damage. There’s no mention of receiving any residual value back.

But at what cost?
Let’s look at it from a T MOBILE US INC (NYSE:TMUS) customer’s perspective. Any smartphone user who’s interested in upgrading this frequently faces two alternatives, with the first being Jump. The second choice is to simply buy smartphones at full retail and sell them to another user in six months after depreciation. I’ll exclude service costs for this comparison.

To start, let’s say you bought a flagship smartphone such as Apple Inc. (NASDAQ:AAPL)‘s iPhone 5, which costs $146 upfront in addition to monthly payments of $21. You’ll pay $60 in Jump fees before the first upgrade eligibility. For the first six months, that’s $332 in total costs before making the jump to a new device.

Alternatively, you could purchase the same entry-level iPhone 5 for $650 and simply sell it after six months if you wanted to upgrade. Priceonomics did a study last year on smartphone resale value and found that on average, smartphones lose 25% of their value in the first six months (iPhones tend to hold their value better than other devices.) That suggests you could sell a 6-month-old iPhone 5 for $488 and lose only $163 in depreciation. Recent completed listings on eBay Inc (NASDAQ:EBAY) back up this theory, as does a Piper Jaffray study on smartphone resale values. That’s half of what you lose in the Jump scenario.