The Economics That Make T-Mobile’s Jump Program Possible — And Intriguing

It has become a rule of thumb in cellphones that it just isn’t economical or practical to upgrade one’s phone more than once every two years.

So, how is it that T-Mobile, through its new Jump program, is going to be able to offer customers the opportunity to upgrade as often as twice a year?

The answer is a complex one, fueled by a range of factors from the surprisingly high resale value for popular smartphones to the importance of attracting and hanging on to high-end customers.

First off, T-Mobile’s program isn’t free. Customers pay $10 a month, though that fee includes protection against theft, loss and accidental damage — a service for which T-Mobile had charged fees ranging from $8 to $12 on its own.

And to get the new phone, customers essentially trade in their old one in exchange for being freed up from having to pay whatever they still owed on their own phone.

T-Mobile also has an aggressive plan to reuse many of those phones that are traded in. It will sell some of the devices as carrier-certified “open box” models, and use others to replace broken models still under warranty.

“We think we can make a big market in refurbished devices,” said T-Mobile marketing chief Mike Sievert.

But just as importantly, T-Mobile CEO John Legere said the program is a new way to ensure that the company keeps more of its customers. Recruiting new customers is an expensive proposition for all cellphone players, so a key financial goal is keeping “churn” of existing customers as low as possible.

Legere said he wanted to offer the program just because it is what customers want, though he is thankful his team, including Sievert and CFO Braxton Carter could make the numbers work out.

So, if it’s a good deal for T-Mobile, does that mean it’s a bad one for customers?

Not necessarily. T-Mobile said that the majority of new smartphone buyers were already opting for a paid protection program. So, for roughly the same monthly cost, customers can now take part in Jump.

It’s likely to appeal to gadget enthusiasts in particular, but also to those who aren’t necessarily sure what they want. Apple fans, too, may appreciate the opportunity to upgrade to each year’s iPhone, rather than having to skip a generation, as is standard under two-year contracts.