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.  It all comes down to the handset subsidy the carrier is giving you.  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 years).  If 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 money back from the phone subsidy.  For a more detailed discussion on this topic, please visit the Subsidies section.


North America Was Unique!
In the U.S. and Canada we were historically used to getting phones 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!  I think it's really a cultural and historical thing, and boils down to the simple fact 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, or is 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 on a 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 don't have 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 as 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 as the 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 Prepaid Wireless!

Be Heard!  Let prepaid wireless providers know what you want; fill out the survey now.