Cell Phone Contracts - Don't Do It!
Are you tired of cell phone contracts? If so, you're not
alone! In fact, I would say that generally speaking, people
are pretty fed up with wireless phone contracts. It's
especially hard to stomach when you start with a new wireless carrier.
You're not sure whether you're going to like the service,
whether coverage will be good in the areas where you live, work, and
play, and whether their customer service is
friendly and helpful. And yet we're expected to sign a
multi-year contract...wow! In fact, carriers in North America
have finally caught up with conventional worldwide wisdom, and have
been shifting to no contract plans in a massive way.
Why Were Contracts Needed?
Although having to sign cell phone contracts is an infuriating concept
for most of us, there is a
reason, and a very good reason why they were largely the norm.
comes down to the handset subsidy the carrier is giving
A subsidy is basically taking a phone that they buy from an
OEM (Original Equipment Manufacturer) like Samsung or Apple, for lets
say $400-$700, however, they then only charge you $100, $199,
$299 or sometimes
even $0 for lower end phones. They can only do
this because they know that they've got
you locked in as a customer for a certain number of years (usually 2-3
they didn't have that assurance, there's a very good chance that you
would leave to use another carrier before they can actually make their
back from the phone subsidy. For a more detailed discussion
on this topic, please visit the Subsidies
North America Was Unique!
In the U.S. and Canada we were historically used to
cheaply (i.e. subsidized). Although in the past we would pay
$400 or $500 for a PDA (Personal Digital Assistant - like a Palm),
nowadays we're not prepared to pay anywhere close to that amount for a
smartphone that has a lot more functionality and technology!
really a cultural and historical thing, and boils down to the simple
that "we're just used to it." When you think about it, it
really doesn't make any sense! It's really the old razor and
razor blade theory, whereby if companies can sell you a razor blade
cheaply, they'll make money when you buy the blade refills; in this
case we're paying monthly for wireless service.
We keep computers, PDAs (before they were extinct that is!), cordless
phones, DVRs/PVRs, and a whole slew of other electronic gadgets for
years, and yet we get annoyed when we can't get a free, or very
inexpensive cellular phone, every year or two. Is it just me,
this really strange? When you continue to think about it even
more, without a contract, not only would wireless providers have a huge
risk of losing money on us, but having only spent $100 or $200
phone (or less!), we're not really invested in keeping that phone.
In other words, next year when a newer, sexier phone comes
out, we really don't think of it as a waste to put our one year old
phone aside and buy another one. We think of them as
disposable super computers!
In most other countries, phones are either not subsidized at all, or
subsidized far less. People overseas are willing to invest
in their wireless handsets, and for that upfront cost, they typically
to sign cell phone contracts, because most countries are predominantly
prepaid and allow you to easily switch carriers. This is
where North America has been shifting, and the negative stigma of
having a prepaid plan has dissipated.
Keeping Your Number Hurts
Carriers Even More!
Also, once WLNP (Wireless Local Number Portability) came into effect on
November 24, 2003, it became even easier for customers to switch
wireless carriers because we no longer had the downside of having to
give up our phone number, which was the only thing of real value that
wireless carriers could use to keep us with them. So as much
we love to hate our
wireless provider, when you sit down and really think about it, there's
really a lot at play here!
The Bottom Line
We don't like cell phone contracts, no doubt! However, we
also don't like paying a lot for our wireless handsets. I
think the best compromise is for us to be willing to pay a little more
for our phones to avoid having to sign cell phone contracts.
And for that commitment/investment, carriers can't lock us
into their service. If they want us to stay with them,
they'll need to provide good service, with a good value, and great
customer support; is that really too much to ask? Note that
cost of wireless phone technology continues to come down, it will be
easier for wireless carriers to offer phones at a reasonable price
(with little or no subsidy), and for OEMs to still make money selling
their products. At the end of the day, it will be a
win-win. If you're still not convinced, read more about Why