The unlocked version of the iPhone 5 is now available at the Apple Store for as little as $699. An unlocked phone doesn't require a long contract, so you're free to switch carriers or use a cheaper prepaid phone plan, but you'll shell out a lot more for the phone up front. Is the extra cost worth the extra freedom?
With a two-year contract, a new iPhone 5 will run about $199, so the benefits of an unlocked phone need to be worth more to you than $500.
The unlocked iPhone 5 only works on GSM networks. Sprint and Verizon use CDMA, so you're out of luck if you want to use one of those carriers; you'll need to stick with either AT&T or T-Mobile.
T-Mobile is actually the only large US carrier that doesn't offer the iPhone 5, so the unlocked version is your only bet if you want to use that network. But T-Mobile hasn't rolled out its LTE network yet, so you'll be stuck using the slower 3G connection.
T-Mobile also offers inexpensive prepaid plans, which can run as little as $30 a month, less than half the cost of a typical cellphone plan, which usually costs around $70 for voice, text and data.
Over the course of two years, you're looking at a savings of nearly $1,000.
Unlocked phones also work well if you travel overseas. Most carriers charge exorbitant roaming fees in other countries (stories abound of people being shocked by charges in the thousands of dollars because they forgot to turn off their data service while abroad for a few weeks).
The unlocked iPhone 5 can take a foreign SIM card, which you can buy for around $20 in most European countries, with usage charges as low as $5 for a two-week stay.
But the new SIM card won't use your US phone number, so friends and family back home will pay long distance charges to contact you. An iPhone under contract lets you use the same phone number, so your friends can still contact you in the same manner, while you pay the extra costs for the overseas connection. It's not cheaper, but it does keep all the additional costs on your end.
But before you run out and buy the unlocked iPhone 5, keep in mind that the Verizon version of the phone already comes with an FCC-mandated unlocked SIM card slot, so it offers the same overseas benefits as the unlocked iPhone, with the pros and cons of a Verizon contract (4G data service, two-year contract, higher monthly bill).
And if you're stuck using 3G data service on T-Mobile, you might want to consider the Google Nexus 4, which come unlocked directly from Google for as little as $299. It can't use 4G data anyway. (The Nexus 4 just sold out, so you might have to wait a while.)
Bottom line: if you absolutely hate the idea of a long contract, you're fine with using AT&T or T-Mobile, and you can afford to shell out nearly $700 upfront for your phone, the unlocked iPhone 5 is a great idea. You'll pay less in the long run, and it's the way Europeans have been buying their phones for years.
If you travel overseas a lot and you don't have a company that covers your cellphone costs while you're away, consider either the unlocked iPhone 5 or get one through Verizon.
And if you prefer to distribute your costs more evenly throughout your contract, even if you end up paying more in the long run, stick with the traditional model.
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