A preamble: Given the current uncompetitive US cellular climate and relatively atrocious level of service provided by all of the major players, a major goal of mine remains minimizing the total dollars given to my cell provider. If this is a shared goal, the optimal time for cell phone replacement, on contract, at subsidized rates, is the first moment possible.
To clarify: Apple sells unlocked iPhones for $650. AT&T sells locked iPhones for $200. That means AT&T purchases iPhones at some rate slightly lower than $650 and subsidizes some amount less than $450 to each customer to entice them into a 2-year contract with a total value somewhere north of $2,000.
This means for every iPhone sold, AT&T pays Apple up front, and earns it back over time. When the subsidy has been recovered, usually between 18 and 24 months, AT&T begins offering its customers new phones at fully subsidized rates in exchange for signing a new contract.
Because the user’s monthly bill does not decline once their subsidy is paid off, AT&T’s profit increases immediately for every customer who continues to use their old phone after it is paid off.
Thus, to avoid paying AT&T any extra money, AT&T customers should upgrade immediately upon being able to receive a full subsidy again.
Hence, 16 months after standing in line for an iPhone 4 at launch day, I have an iPhone 4S.