Upgrading to iPhone 5 Despite AT&T, 2-Year Contract

NEW YORK ( TheStreet) -- Fellow TheStreet contributor Anton Wahlman wrote an excellent article questioning the logic of the prevailing way we secure smartphones -- on a two-year contract with a large carrier such as AT&T ( T), Verizon ( VZ) or Sprint ( S).

The carrier subsidizes the phone -- $450 a pop for iPhone -- making its money back, and more, throughout the life of the two-year commitment. Wahlman argues that we're all suckers for signing the seemingly sweet deal. Basic math proves his point. You would be better off taking a hit on the phone today and coming out ahead over the life of the deal with a less expensive monthly plan.

In theory, I agree with Wahlman.

I don't drive, but, when my wife bought her last car, she actually bought it. We reassessed the practice of leasing and determined it made no sense. Leasing works for people who want to pay less money up front, face a lower monthly payment and get a new vehicle every two to three years with perceived relative ease.

We live in a world where two themes prevail: Lots of folks are pressed for cash and, as liberal use of credit cards shows, we frequently choose the buy-now, pay-later option. Until you hit a financial brick wall, paying later can feel like not paying at all.

That dynamic must trigger some sort of chemical in the debtor's head. By not putting cash (or more cash) up front for a purchase, I have it here to instantly gratify myself.

For example, that $450 I "save" by signing a two-year contract for an iPhone makes me feel "rich" today. Paying that $450 back over time for something I will likely not even use doesn't hurt nearly as much as depriving myself of something else I feel I "need," such as a weekend vacation or a big night out.

It comes down to budgeting and money management. Sometimes it's a responsible process with sensible tradeoffs; at other times, not so much.

I'm not sure why I do two-year contracts.

It could be that I like to torture myself. Because, really, that's what a 2-year contract with a wireless carrier often turns into. An excruciatingly painful process that either ends in an "upgrade" or something resembling bitter divorce proceedings.

Long story short. That's where I am with AT&T.

There's not a nicer way to say it, the service I get on our three lines stinks. It's wholly unreliable here in Southern California and was actually worse last month in Manhattan.

That's when I had enough and called AT&T telling them that I want out. After being told, "We cannot guarantee service," (I was dumbfounded) my hour-long call ended with a manager promising to call me back when I returned home from vacation. We even scheduled a time. That call never came.

Now, my strategy is to call AT&T customer service as many times as possible each month in hopes that I will turn myself into an unprofitable customer.

On my most recent call (yesterday), a friendly customer service representative actually sent my case to "the urgent team," who will, apparently, get back to me within 72 hours.

When I finally discuss the situation with a decision maker, I will be straightforward.

From safety and convenience standpoints, it's wholly unacceptable for me to have such unreliable wireless service. I don't "want" to get out of my contract; I have to simply because AT&T is not holding up its end of the bargain.

I recently committed to Verizon on a two-year contract for two iPhone 5s. I know, that's masochistic really, given what I am dealing with now. But my need to be in a relationship with a wireless carrier is nearly as warped and powerful as Apple's ( AAPL) halo effect.

I'll even let AT&T know this. Because, when it comes down to it, it's this simple, I have never come across somebody who lives in Santa Monica and is happy with AT&T service. I generally hear positive reviews about Verizon and Sprint.

That doesn't mean AT&T is bad and Verizon and Sprint are good. It's location-based. Other parts of the country exist where I'm certain people have five-bar 4G LTE 24/7 with AT&T, but could do better with two tin cans and string in lieu of Verizon or Sprint.

About a month ago, I wrote an article arguing that because spotty service ruins user experiences, companies such as Ford ( F), Microsoft ( MSFT) and Pandora ( P) should hate AT&T.

Looking back, I was probably somewhat unfair.

All wireless carriers experience service issues from time to time and in some parts of the country. They also shoulder a disproportionate amount of the expense to grow and maintain the nation's wireless infrastructure.

Think about it. Wireless firms pay Apple a king's ransom for each iPhone they put out the door. Apple gets a free ride on their networks. You don't see Apple or other smartphone makers sharing in the cost.

President Obama apparently wants to step up the level of investment in the nation's wireless infrastructure, for emergency, economic and competitive reasons. In fact, his 2013 budget sets aside $10 billion for nationwide broadband and "spectrum innovation."

That's really the answer. We need reliable wireless service. As consumers. As businesses. As first responders. For work. For play. At home. On vacation. And in urgent situations.

Every little gripe about AT&T, Verizon or Sprint from a guy like me adds up to illustrate the larger problem.

The solution is a more concerted, public-private effort to make the nation's wireless infrastructure the most trustworthy in the world. That, to me, makes the cost of a two-year contract, like a tax that produces a public good, much easier to swallow. And we should all be more than happy to share in the cost from wireless carrier to hardware maker to smartphone owner to local, state and federal government.

At the time of publication, the author was long P.
Rocco Pendola is a private investor with nearly 20 years experience in various forms of media, ranging from radio to print. His work has appeared in academic journals as well as dozens of online and offline publications. He uses his broad experience to help inform his coverage of the stock market, primarily in the technology, Internet and new media spaces. He has taken a long-term approach to investing, focusing on dividend-paying stocks, since he opened his first account as a teenager. Pendola, 37, is based in Santa Monica, Calif., where he lives with his wife and child.