No Contract Cell Phone Plans Exposed! Are They Really Better?

  • Invest, Loan
  • June 17, 2017
  • Comments Off on No Contract Cell Phone Plans Exposed! Are They Really Better?

Image courtesy of Stuart Miles / FreeDigitalPhotos.net No contract mobile phone plans have become all the rage as of late.  I even tried one through a blogging opportunity last year and was actually quite impressed.  Apparently, no contract providers have gotten the attention of the major carriers, as they have begun to offer no contract […]

Cell Phone_pic

Image courtesy of Stuart Miles / FreeDigitalPhotos.net

No contract mobile phone plans have become all the rage as of late.  I even tried one through a blogging opportunity last year and was actually quite impressed.  Apparently, no contract providers have gotten the attention of the major carriers, as they have begun to offer no contract plans of their own. 

I received an email from my carrier outlining their no contract plan last Friday.

We’re currently under a two year contract with ATT&T, and for my family of four plus two extended family members to all have smart phones sharing a 10GB data plan we pay $309 a month.

Note: Our monthly rate includes a 23% discount off the data plan through my employer.

The email indicated that by switching to the new AT&T no-contract family plan, we would have the same unlimited talk and text  plus 10GB of shared data capability at a rate of $167 a month (after applying my employer discount), or about $28 per line.

That’s a total savings of $152 a month!

As with anything that cuts a significant bill in half, I was skeptical.  If it sounds too good to be true, it probably is.   The representative I spoke with on the phone was very forthcoming about how they are able to offer such a price reduction:  With the no contract plan, there is no longer discounted handset upgrades.  Which means you would pay $600 or more for your next generation iPhone. BUT, she was quick to point out that we can upgrade our handset, and make installment payments on the phone that would be conveniently added to our monthly bill.

Gee, thanks.  I’d just love to make installment payments on a phone.

Being the curious guy that I am, I inquired as to how much it would cost per month to upgrade a handset.  Most of the popular high end smart phones (iPhone 5s, Galaxy S4, etc) would add about $25 to your monthly plan.  It didn’t take more than 2 seconds for me to do the following equation in my head:

$167 (for new plan) +  $150 (6 lines on plan * $25 installment per phone) = $307.

This exercise taught me two things:

  1. When you sign a two year contract, the price of your phone is BUILT INTO the price of your plan.
  2. EVERY CENT you pay for a handset is pure profit for the carrier when you sign a two year contract.  If you don’t believe me, compare my original plan cost to what my monthly bill would be if all 6 of us upgraded our phones.  Then, read #1 again.

Some other things that struck me as very interesting about the new no-contract plan:

  • The price of our new no-contract plan, plus the cost for all six of us to upgrade our phone looks suspiciously similar to what we pay now.  (Again, read #1 above)
  • The number of monthly payments needed to own the phone outright is 26. Hmm, that looks suspiciously close to length of our current two year contract.
  • Under the no-contract plan we can cancel at any time.  However, the remaining balance for any phone under an installment plan would be due in full.  Does that sound like a cancellation fee to anyone else?

If you plan to upgrade your phone every two years (or less),  no contract plans are almost identical to the two year contract plans. The only difference is the structure and terminology of the fees.

There are, however, two major advantages to no contract plans that can result in significant savings on your cell phone plan:

Upgrade Frequency:  Under a 2 year contract, the price of your phone is included in your monthly bill.   That means that after your contract is up, and you continue the service, you’re paying for a new phone whether you upgraded or not.  In a no contract plan you only pay for a new phone (either in full, or through installments) when you are ready to shell out the cash.  When you’re not paying for a new phone, your bill is significantly lower.

Phone Price:  Under the 2 year contract, you’re paying for a premium phone whether you have one or not.  If you don’t want, or cannot afford a premium phone, the no contract structure allows you to have total control over how much you pay for your phone.

No contract mobile phone plans are a lot of smoke and mirrors, and aren’t as different from the traditional two year contract as the carriers would like us to believe.  But they do put control of the price and frequency of phone upgrades squarely under the control of the consumer, right where it should be.

Do you have a no contract mobile phone plan?  How often do you upgrade your phone?

 

  • Published On : 3 months ago on June 17, 2017
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  • Last Updated : June 26, 2017 @ 7:27 am
  • In The Categories Of : Invest, Loan
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