Friday, March 7, 2014

Is Contract Free the Future?

(Note from David:  Today's post is a guest post from Cindy Siebert.  Cindy is the blogger/owner of Scribbles and Musings.)

Before March 2013, the standard mobile phone plan on all four major carriers consisted of a two-year contract and a subsidized mobile phone. If you wanted to move to another carrier anytime during the two-year period of your contract, you would be charged an Early Termination Fee (ETF). Those ETFs can be more than $300. The high ETFs meant that once you were in a contract, you were essentially stuck with the provider you chose, no matter how bad the service might be. Yes, you could pay full price for the phone and avoid the contract. But you would still pay the same amount for service, which made no contract a very unattractive option. The carriers really wanted you in those contracts.

Then it happened. John Legere, the CEO of T-Mobile, announced that T-Mobile would become the “uncarrier”. The first step T-Mobile took was to drop contracts. You could get a payment plan for your phone, but no tying it to your mobile service. Mobile phone users loved it and the other carriers were worried. While they might have been worried, and they all responded, none of their responses included no-contract options. Finally, almost a year later, that is starting to change.

T-Mobile is having success with it’s uncarrier plan. In the fourth quarter of 2013, T-Mobile added 800,000 new customers. The other carriers see this success and are starting to respond. AT&T is advertising a $45/month mobile plan with no contract. Sprint has just introduced the “Framily” plan which includes no contracts and no early termination fees. Finally, users have lower-cost plan options when they choose to go no contract.

Even with the carriers beginning to embrace the idea of no contracts, there is another stumbling block. The price of unsubsidized phones. Most people cannot easily afford that initial investment of $700 to get a quality smartphone. Yes, you can sell the phone in the future to help cover the cost of your next phone. The lower cost plans will also help make a difference in the future. However, that initial investment is still steep. The good news is that there is help with this on two fronts. T-Mobile, Sprint & AT&T all provide installment plans for their no-contract customers. Another option is less expensive, but not less powerful, phone options.from Google and Motorola. Both Google and Motorola have no-contract phone options for under $400. One option, the Moto G, is only $179.

No contract options have existed in Europe and Asia for years. Until recently, there weren’t any great options for going contract free in the United States. Looks like that’s finally changing. Verizon seems to be the only hold out on the no contract front (and as the larger carrier in the U.S., I don’t expect that to change soon). Even with Verizon holding out, new lower priced plans and less expensive smartphone alternatives, there has never been a better time to go contract free in the U.S. It looks like the future is finally here.