New World of Cell Phone Contracts

Know What You Are Paying For

New World of Cell Phone Contracts
September 9, 2015

For years, cell phone users have been weighed down by the ball and chain of the dreaded two-year contract that locked you into a carrier. Terminating a contract early triggered prohibitive cancellation fees. This model has slowly been changing over time to allow greater ability to switch between carriers, thanks in part to carriers willing to buy out customer's contracts to switch to their services.

Verizon's announcement in early August that service contracts would be eliminated likely signals the end of the traditional cell phone service contract. Sprint followed suit, announcing that service contracts would be eliminated by year's end. T-Mobile eliminated service contracts two years ago.

That leaves AT&T as the only one out of the four major carriers that allows contracts — although AT&T has a monthly option through family sharing plans. Service contracts are available but not publicized. Contracts are strongly discouraged in favor of family data-sharing plans. It is likely only a matter of time before AT&T eliminates contracts as well.

In essence, with all carriers, the cost of the phone is being decoupled from the service. The traditional contract included a higher monthly bill to subsidize all or part of the cost of your phone. The latest model was available for a few hundred dollars, while the previous model could usually be acquired for practically nothing but an activation fee. With the decoupling, it will be clearer what you are paying for within a mobile plan.

The methods of paying for the phone and the voice/data packages offered will be the distinguishing mark between carrier's plans. Undoubtedly, some customers will suffer from sticker shock as they see the price of the newest generation phones — often in the $600-$700 range for the more desirable models. Even lower generation phones typically cost in the range of $200-$400. However, once customers find out how much they actually paid in extra monthly fees over the life of the contract, those prices fall into perspective pretty quickly.

Verizon and AT&T allow you to pay for the phone upfront or spread it out in installments over a certain amount of time. The installment payment plan is similar to the service contract, as you are still paying for the phone in your monthly bill — you can see how much of your bill is related to the phone, and after the assigned payment period, the cost of the phone drops off your monthly bill. There is no contract holding you to that carrier, but the remainder of your phone payments will be due in full if you switch carriers.

Sprint and T-Mobile are going for the lease method. Each carrier offers a monthly phone-leasing fee. After the terms are complete, you can trade the phone in for a newer model. As with Verizon and AT&T, it is the terms of the phone that keeps you with the carrier and not a service contract.

The other dirty little secret that limits mobility is that not all phones are compatible with every carrier's system. Each carrier has a slightly different technology for 2G voice systems and runs the 4G data on different bandwidths. The phone must be capable of running under both conditions, and lower-end phones may not have that capability.

You can bring a phone that you already own into a new carrier's mobile plan, but it is important to verify that the phone you own will work with the system of the carrier you want to switch to, and what limitations may apply. Carriers have great incentive to have you continue to purchase or lease phones through their stores.

Perhaps the greatest beneficiaries of these changes are smartphone users who do not feel the need to upgrade constantly to the latest model. Under the old subsidized plan, these users continued to pay a monthly fee on a phone that they already owned outright. In essence, these customers were giving away money to the carrier in exchange for the "freedom" of not committing to another contract.

Within some family plans, it may be possible to accommodate the family Luddite by giving him or her your old phone once you upgrade, if theirs is an even older model. If you own the phone, you may be able to have your carrier switch the phone to a new SIM card and only pay an activation fee to be good to go. Check the rules with each carrier as they may change over time (again, the incentive rule applies).

In general, the demise of the service contract is a good thing, because it makes the costs more transparent. Now, it is all about the phone. If you think that you may be switching carriers within a short period or plan to shop around, choose your phone and your payment method wisely.


Photo ©iStock.com/mihailomilovanovic

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Nancy | 09.09.15 @ 16:54
We've always opted for the non-contact options. It just fit our needs. All of the perks of the big carriers and their ridiculous contacts have slowly moved our way.
trish | 09.09.15 @ 17:00
Glad to see these big companies moving this way. We only have "dependable" service from the big companies, so they often forced our hand to sign these contracts. Now we will feel we have more choices
Erin | 09.09.15 @ 17:01
Great information to have. Being someone who does not upgrade constantly, it's nice to know that there are benefits to not doing so.
Sara | 09.09.15 @ 17:01
We try to get no contract options. However, somehow it always feels like we still end up in a contract somehow.
Steffanie | 09.09.15 @ 17:18
I have not upgraded my phone for this reason. Unfortunately, my husband uses his all the time for business, so he pays to keep his upgraded.
Elaine | 09.09.15 @ 17:19
We are in a non-contract with T-Mobile's family plan. We haven't updated our phones in years.
Daniel Dohlstrom | 09.09.15 @ 17:20
So much hidden in those things .. much happier on a no contract plan now
Beverly | 09.09.15 @ 17:21
I love not being under a contract anymore, I only wish my carrier had better coverage where I live.....if only they would work on that.
Kathryn | 09.09.15 @ 17:21
We have always gone contract with my family, it's simple and easier to maintain. Been nearly 12 years too! :)
Zanna | 09.09.15 @ 17:21
For a family of five, the costs were becoming outrageous! We finally switched to a low-cost carrier that mainly uses wi-fi networks. Much cheaper, and usually just as reliable as the big name carriers.
Owen | 09.09.15 @ 17:31
I loved the two year contract as I usually keep a phone for two years. I don't like the new pricing at all. No reward for loyalty.
Heather | 09.09.15 @ 17:31
Since switching carriers this is the first time we have gone with a no contract plan and love it.
Christina | 09.09.15 @ 17:35
I like the non contract deal. No extra charges
gracie | 09.09.15 @ 17:38
There are becoming too many great options that do not require a contract for many of us to commit to them anymore.
Britt | 09.09.15 @ 17:48
I've chosen to not do contract-type lines anymore. It just seems so much more freer to do things with
Kyle | 09.09.15 @ 17:52
I personally perfer contract lines. I've always had one and liked it.
Morgan | 09.09.15 @ 17:57
I am on a non-contract phone plan and honestly I prefer it this way. I have no attachment to the company , so I am free to move if I need to without any fees
Victor | 09.09.15 @ 17:57
Well it seems that the big companies are changing for the best
Wanda Langley | 09.09.15 @ 17:57
I tried a plan without the contract and it never worked for me. Will be glad when AT&T gets rid of contracts.
Christina | 09.09.15 @ 18:09
Recently switched to T-mobile for the no-contract plus saving about $80 over Verizon. It really pays to research.
Carla Truett | 09.09.15 @ 18:14
We go the prepaid route now. We got burned too many times with contract phones and hidden fees.
Stokes | 09.09.15 @ 18:24
We went with the no-contract plan this last time, it's been cheaper for us.
Sarah | 09.09.15 @ 18:29
Only one time in my life have I had a cell phone. I was a manager and apparently they needed to get in touch with me 24/7? At any rate, I opted out of a contract just because I don't like them. It's nice to see the options are getting better now.
Clarissa | 09.09.15 @ 18:56
I am unsure about the way the new plans are going. I use a "big carrier" and have used the same one for several years. Whenever I upgrade I tell them I'm sticking with the same plan I had originally and am not changing to a new way. It may be good for some, but I like to stick with my same basic plan.
Alec | 09.09.15 @ 19:01
My phones all were the contract version from 2006 till now. My family switched to a monthly family plan on AT&T recently since it was less expensive than the 2 year contract. I did have to pay for the cost of my phone but it was still cost effective in the long run. I'm happy to see that fewer carriers are trying to lock people in, especially since people were either going without phones or having to pay huge fines if they couldn't afford their plans sometimes.
Ron | 09.09.15 @ 19:15
I use T-Mobile and I love the no-contract runs. If I see a better no-contract deal, I can jump ship just fine. $280 fee to terminate bad service? Not here!
Kamie | 09.09.15 @ 19:15
I am in a long time contract, I am not proud of it. but I do love my S6, and I have not really had any issues with my carrier, nor plan on switching,
George Middleton | 09.09.15 @ 19:19
I'm glad to see more of a choice of what fits our needs.
Selena Walls | 09.09.15 @ 19:39
We do pay as you go phones. Pay about 25$ every three months, and that does us just fine.
Angie | 09.09.15 @ 19:39
We've been with the same carrier for several years - we've moved from contracts to the no-contract plan. With the cost of the phone, we were basically on a "non-official" contract anyway - I don't want to pay the balance of what's owed on the phone in a lump. I've been happy with my service anyway...It's great now that my phone is paid off (after 2 years) not to have that extra payment, but the rate of technology change will insure that I'll have to upgrade in the next year or so anyway.
Tina | 09.09.15 @ 19:54
We use Republic Wireless - no contract, unlimited everything (including data) for $25 a month. No reason to spend nearly $200 a month on the same thing like we were doing before!
Andrea | 09.09.15 @ 19:59
We have. But my boyfriend has been with the same cell company for over 20 years. something really good would have to fall in his lap to change.
Amanda | 09.09.15 @ 20:21
I don't mind the two year contracts so much because I like being able to get my upgrade. But I just found out that they aren't doing the upgrade if you continue the contest and in order to get an upgraded phone you can split the cost of the phone between monthly payments.
Bobbie | 09.09.15 @ 20:21
Glad to get away from the contracts as I've always kept my phones for 3-4 years anyways.
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