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Really, Why Are Smartphones Still Tied To Contracts?
Matthew Yglesias at Slate wrote a year and a half ago about T-Mobile up-ending the cell phone industry by starting to sell phones and phone service separately. Yglesias wrote about the prevailing cell phone business model up to that point:
The customer walks out thrilled with the deal he got on his phone. Only later, when his ridiculous, complicated, and obscenely high bill comes, does he realize he has been fleeced.
[...]
The subsidy model is basically a scam, but it only arose thanks to our own collective mental failings. A phone-buying public used to getting high-end devices for $200 or $300 may simply balk at the discovery that a pocket-sized computer’s actual price is twice that or more. Until now, limited competition in the industry has let us optimistically believe that the American phone-buying public is the victim of unscrupulous business practices. But if T-Mobile can’t make this work, the lesson will be that the real fault lies with ourselves.
I always thought the underlying question was more complicated than that. First of all, if customers really realized that they had been "fleeced" after the first of their 24 monthly bills came in, that scam should only work on a particular customer for... two years, and then they would be wiser the second time around. But plenty of users stay with Verizon and AT&T year after year, getting new free phone "upgrades" that lock them into extended contracts. And besides, are so many phone buyers really that dumb, that they would take a "free" phone while entering into a two-year recurring billing contract, without thinking about how much that would commit them to paying in the long run? This is why I think that explanation doesn't meet the criteria of making realistic assumptions about how easy it is to fool the public.
Or if you think people really are that gullible, then the obvious question is why that tactic doesn't work for other products sold just a few feet away at the same Best Buy. While cars and other big-ticket items are often advertised for "No money down and just 24 monthly payments of $X", the vast majority of laptops and other expensive consumer goods are simply advertised with their sale price, and if you want to pay for them in installments, you can work that out at the time of purchase. If consumers are really dumb enough to be swindled into overpaying for their cell phones over two years, why aren't laptops and other items advertised in terms of two-year monthly payment contracts? This explanation makes inconsistent assumptions about how dumb we are.
And it can't be as simple as "Some people don't have the money to pay for the phone up front," because most places you enter into a cell phone service contract, will also let you buy the phone outright and set up an installment plan to pay it off (which of course is basically the same thing as paying it off over your two-year contract). You have to get a credit check to get on an installment plan, but you have to get a credit check to get on a cell service contract too. So that can't be the complete explanation either.
And then there's the twin mystery of why T-Mobile finds it profitable to do the opposite and avoid contracts entirely. This, at least, has a plausible explanation -- T-Mobile, with the smallest coverage area of the major cell providers, was looking for a way to differentiate itself from competitors that didn't involve slashing prices in proportion to their smaller coverage. So their phones don't work out in the boonies, but you know exactly what you're paying for when you buy the phone, and when you buy the service plan.
But why does everyone else continue to sell phones on contracts? Why do we still fall for it? And why don't the same tricks work for other expensive electronic goods?
The best explanation I've heard so far involves a combination of the following:
- Cell phones, unlike cars and laptops, don't look like they should cost as much as they do. (Electronics engineers know that of course it's harder and more expensive to fit fancy circuitry into a smaller space, but regular phone buyers instinctively think smaller should be cheaper.) So people would instinctively balk at the sticker price of a smartphone, even if it were payable in installments so they didn't have to have the cash up front. As a result, they pay instead through a more expensive service contract, even though the total ends up being more than if they had just bought the phone and paid in installments.
- Cell phones, unlike cars and laptops, are only useful when tied to recurring purchases of another product, the cell phone service plan. This presents an opportunity to confuse buyers who have no idea how much that service plan should actually cost, so they don't realize how much the service plan fee has been inflated to cover the cost of the phone. A laptop, by contrast, may only be useful when connected to the Internet, but there isn't a one-to-one pairing of laptops with Internet service contracts because multiple laptops in the same household usually share the same WiFi bill. And all cars require gas, but it would be hard to sell someone a cheap subsidized car and then require them to buy all of their gas from one overpriced vendor for the next two years.
These explanations are at least internally consistent, so they could be true. Who knows if they actually are true. Can you think of others?
The good news is that other cell phone companies are catching on: When I called the local AT&T store to ask if they had any "free" phones that came with a two-year contract, the salesman immediately steered me towards purchasing the phone and the plan separately, T-Mobile-style, saying it was cheaper. He said I could get a Nokia 920 for free with a two-year contract to pay $40/month, or I could buy the phone outright and pay it off in installments of $11/month, while meanwhile using the service plan for $25/month, for a lower combined price of $36/month. The local Verizon store said I could get the latest Droid for free with a 2-year contract paying $75/month, or I could pay the phone off in installments of $16/month while getting a discounted non-contract service plan for $65/month. So Verizon in this case doesn't actually make it cheaper to buy the phone outright and pay it off in installments, but at least it's a step in the right direction. (When I bought a phone from Verizon two years ago, they didn't offer any discount on their monthly service plan even if you bought the device outright. It has always been possible to buy cell phones at a full retail price, but of course it didn't make sense unless you would get a corresponding discount on the service plan.)
So this is good news, but it makes the relevant question even more difficult: Why is it that cell phone companies previously found it profitable only to sell phones on contracts, and now find it profitable to move slightly in the opposite direction? With any luck, soon the question will be a historic one: "How come cell phone companies used to confuse us about what we were really paying for our cell phones, and why did we put up with it?"
Can you find any statement that is incorrect?
bla bla bla...
Because things change. Who the fuck cares?
Get this guy off Slashdot. He's a fucking moron windbag.
Because telecom markets are monopolized (or at a minimum, duapolized), and it is precisely that level of control which allows them engage in predatory business practices.
If the customer fails to pay on the other products turning it off and or reclaiming it is difficult.
With a car it is high value so reclaiming can be done.
With a cell phone I can turn it off if you don't pay.
With a laptop and most other consumer stuff that does not work so well, and the item is not high enough value for the things that work around autos.
Your Blog Sucks
You know, here in Europe we haven't really heard about "deals" like that...
"This explanation makes inconsistent assumptions about how dumb we are."
That is because humans *are* inconsistent.
You can most certainly get a smartphone without a contract, even as pay as you go. BH hasn't been paying attention.
No company these days does something customer-friendly on their own. In this case ETFs are actually illegal in some states and have been for years.
I would argue that leasing a car is not unlike a phone contract, you get access to a way more valuable car for a period of time than the equivalent payment would get you.
Not that you get to keep the car after, but some people just go from lease to lease the way you describe going from phone to phone.
"There is more worth loving than we have strength to love." - Brian Jay Stanley
Uhmm, are they? I never bought any smartphone on contract with operator. The last phone I bought like that was a standard dumb phone many years ago.
Of course there are offers like that, but saying that "smartphones are tied to contracts" is bullshit. You just buy a phone, put SIM in and you're ready to go. If you're doing it in different way, that's your problem.
T-Mobile is losing money. Something in the $100m/year range.
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Now ask yourself this, if you buy the phone outright.... Does your plan go down? As a ex Sprint rep, you still pay your 39.99 for your plan. So why not get the free phone. Also many of these companies lock you into a contract for service even if you show up at their store with your own phone.
For some people, it's likely that a single payment per month that includes the phone and the service is a nice and convenient way to make the purchase, especially if they are likely to upgrade the phone every couple of years anyway. For others, the a-la-carte purchase of phone and service is more appealing.
Its like the story of the 2 bakers that had stores next door to each other, so were both not making much money.
One put his prices up, the other put his prices down.
Guess which one survived?
AT&T is the short-sighted baker who is still trying to charge you $10 for a loaf of bread and lock you into only doing business with them, because to do so makes them more money per customer.
T-Mobile has broken ranks with the price-fixing collusion of the big carriers, and are now trying to charge a fairer price and not lock people in, on the basis that Americans aren't actually stupid so will switch to a better deal. Honestly I'm not as sure as they apparently are about that one. T-mobile now make less money per customer, but are gambling on ending up with way more customers and it being a net win.
I hope T-Mobile are proved righ and do win because companies like AT&T badly need to be given a black eye for their sleazy price gouging and nickel-and-diming practices.
Quite simple really. As long as they can trap you due to lack of alternatives, they will. Once there are *viable* alternatives, then they wont do it any longer.
That aside, i do see many non-contract smartphones out there.. but they do cost you upfront, which is beyond many people's budget in this current economy. So i really dont see the point of the question anyway.
---- Booth was a patriot ----
Quit asking us to do your homework for you.
who prays for Satan? Who in 18 centuries has had the humanity to pray for the 1 sinner that needed it most? ~Mark Twain
If I had to pay the up-front $700 cost of the latest-greatest smartphone, I'd never do it. When it's only $200, I can generally scrape that together.
Tied plans are hiding the true costs of the smartphones Americans buy, which is encouraging high-end sales. We all essentially have our next phone on layaway.
"the obvious question is why that tactic doesn't work for other products sold just a few feet away at the same Best Buy"
It does. It's called a credit card. People use them.
So this is good news, but it makes the relevant question even more difficult: Why is it that cell phone companies previously found it profitable only to sell phones on contracts, and now find it profitable to move slightly in the opposite direction? With any luck, soon the question will be a historic one: "How come cell phone companies used to confuse us about what we were really paying for our cell phones, and why did we put up with it?"
As TFA points out, it's generally a pricing perception issue. People will part with $0 upfront and pay $XX per month rather that $600 up front and $YY per month; even if the second option is cheaper. Since the first option results in more money companies do that
Why did T-Mobile decide to do it differently? The cell phone business is a high fixed cost (the network) low variable (carrying a call) cost industry. T-Mobile, as TFA points out is a much smaller #3. Even so, their fixed costs are probably not proportionately smaller since they still have a similar service footprint except perhaps in low density rural areas. So they need as many subscribers as possible to cover the fixed costs; hence a move to differentiate themselves in the market.
I'm a consultant - I convert gibberish into cash-flow.
AT&T does not offer any smartphone plans for $40 or $25/month.
They start at $45/month ($25 base + $20 for 1 device) with 300MB of data. 2GB is $65/month ($25 base + $40 for 2GB.)
I always found it odd that you get charged both ways in the US for incoming and outgoing whereas Europe and the rest of the world has always only charged for outgoing minutes. It's because people don't know any better I guess.
Sure, its hard to physically reclaim, but filling suit is not expensive to get you to pay for it, due to breach of contract. Normally they dont even have to show to court, just file the papers and garnish wages.
---- Booth was a patriot ----
...and more importantly why should I care about his random "thoughts" of the day?
How does this crap get on the front page anyways?
Well, if you pay for a phone outright, like a iphone 5 for 600 bucks, you are not locked into a contract. If you cant afford to pay that, you can get in anyway for 200 down and a payment plan - i.e. the contract or a guarantee for the wireless company they will have income and can get a ROI, the investment being you.
Maybe a question that makes more sense - are smart phone really worth what they charge for them? The answer is probably yes. So here we are.
Seriously, what is he twelve and never heard of any countries besides the USA.
Don't complain about syntax, grammar, or spelling. There is no.hell like input on android.
That's your answer.
Because people are inherently bad with managing money. A lower sticker price increases sales.
And, for the people that can manage their money, there is no material savings by not using the subsidy if you need to use ATT or Verizon.
Ever hear of Virgin Mobile? I bought a new unlocked AT&T droid phone from ebay and got service through Ultra Mobile. No hassles what so ever.
First, this article is stupid and made more dumber for reading it.
Secondly, people like to finance everything. You're just financing your phone. It just makes it a little more complicated that it's hidden in a monthly service. It's that simple. Doesn't need a story. Can we un-post this?
Do not meddle in the affairs of sysadmins, for they are subtle, and quick to anger.
when beta goes live I'm switching to bennethaselton.blogspot.com
Short version: "Bennett Haselton writes 1300 words on something that has been hashed to death a million times already."
Next!
Seriously, what is this shit doing on Slashdot?
Dear Slashdot: next time you want to mess with the site, add a rich-text editor for comments.
Its designed by bean counters and MBA's
You realize AT&T has moved to clearly specifying an installment plan for the hardware, with the full retail price clearly stated, right? At clearly defined dates (whether 2yr/18mo/12mo), based on slight changes in payments, you may simply swap your hardware--or not, just eventually pay the hardware balance to zero. At any point, the service can be terminated without penalty, save whatever balance remains on the hardware.
Terribly sorry if that gets in the way of being a petulant, insufferable douche with an astoundingly misplaced superiority complex. To many people, that is a perfectly reasonable transaction, save maybe getting gouged to death on the data rates, but that's a different story that has nothing to do with your perceived superior intellect.
Seriously, get over yourself, Bennett.
It's official, Slashdot has become Bennet Hasselton's personal blog.
Repeat after me: "Oligopolies Suck".
Table-ized A.I.
because with a 2 year contract they only need about 20 minutes of customer service. without a contract, they have to constantly woo you, else you'll run off to the next trollopy cell phone carrier.
service contracts with ETF's are the most customer UNFRIENDLY fucking invention of the ever.
It's not just "handsets are expensive, so we're selling them on an installment plan" or "because we provide locked-in service." It's because the cell phone companies, and indeed almost every other business, does not want a revenue stream at slightly above the cost of providing their service. Cell service providers want the greatest possible monthly revenue stream, which will almost certainly result in a higher margin, to occur over the conract period and beyond. They figured most of us wouldn't trade in their handsets every 2 years, which resulted in nice margins once the handsets were paid off. Did you see your cell bill drop after 2 years? I didn't.
If the cell phone companies could have gotten away with locking customers into 3-year+ contracts they would have, but that's a separate issue
It's not just T-Mobile nibbling away at AT&T, Sprint, and Verizon 2-year contracts. It's MVNOs putting pressure on the sacred 2-year contract, too.
At the risk of burning karma points, here's a consumer-focused article I wrote describing how MVNOs might save a consumer money in monthly service fees: http://www.bills.com/bills-blo...
AT&T now charges something like $25/month more per line for customers under contracts than for customers who own their own phones.
I think Verizon has a similar deal.
In any case, it is now clear to anyone that in addition to the contract price of the phone which for nice phones runs $99 to $199.00 from a carrier, you will, in the case of AT&T pay an additional $600 over the course of the contract for the phone over what you would pay if you own your phone outright.
In the past, the service cost the same whether you owned your own phone or not and thus, being under contract was in effect getting your phone for $200 plus the cost of 2 years of service. Now you can get the service cheaper and there is no reason not to buy (or let your carrier finance interest free) your phone and take the lower service rate that goes with it.
That doesn't mean it's worth that much though, just that they think it is. Perceived value vs real value.
There's actually a good chunk of evidence on myopic behavior (there's a whole branch of economics dedicated to this stuff).
The comparisons in the parent aren't particularly apt. Buying a laptop or a car is a one-time thing. It's not the same as a cell phone service which takes the form of a business relationship over a *prolonged* period of time.
If you look at such longer-running contracts for services, you can actually find many similarities. E.g., a cable company might heavily subsidize the hook-up. A financial intermediary might take a loss to win you as a customer (e.g., they might absorb the costs for setting up a securities account, doing initial counseling, etc.)
This article is pretty bad from this prespective. It raises certain questions and explores them, while ignoring all other possible questions.
Which is a very pretentious way of thinking.
A few of the comments here hit it head on (i.e. upfront costs too high, lock-in, etc.).
But a really large factor = in the 1990s there were tons of cell phone companies and it was an emerging market.
And these cell phone companies had major infrastructure expenditures because at the time coverage was mostly near major cities.
The typical WIN-WIN arrangement with customer and provider is the customer gets a low price (and all the greatness of a phone that works anywhere, unlike a landline) and the provider gets the security of having a stable cashflow to continue to improve their product and experience.
But Verizon and AT&T are monopoly utilities, thank goodness there is still T-Mobile as a 3rd option.
I am disappointed by this article, even in a few of the question are good, in that apparently the author of the article didn't think that any history of the cell phone industry was important to see the present in context of the past. History always sheds quite a bit of light on the present.
Priest: "Universe from nothing, no laws of physics, sped up time"+ huge discrepancies. Creationism? No. Big Bang Theory
There is nothing requiring you to sign a contract with any carrier. If you BYOD or pay the entire cost of the phone you can go without a contract.
My complaint is that if I BYOD like my Nexus 5 and the phone company is not subsidizing the phone, why do I pay the same monthly fee as the other customers that have a subsidized device?
Because they make more money that way, doofus.
Seriously, who is upvoting this guy's blog posts in the firehose? Or does he have some dirt on the editors? Can't figure out why these BS BH posts keep making it to the front page...
An enigma, wrapped in a riddle, shrouded in bacon and cheese
i wouldn't have bought my Note 3 if i had to pay $800 and a high monthly price
i call, text, read the news and some books
a cheapo phone to text and a kindle or wifi only ipad would be more than enough for me
cellular data is a luxury for most people and not really needed to go about their daily life
The title of the article is:
"Really, Why Are Smartphones Still Tied To Contracts?"
However, this is really an American phenomenon - in most of the world the most common is to buy the phone you want "cash", then get a SIM card from the provider you want (or just move over your old SIM).
This also means that it's common to get a prepaid SIM if one goes abroad for more than a few days, in order to call/receive calls for cheap, and use data without being fleeced. It also means that the phones are not branded the same as the network, but branded as Samsung / HTC / Apple / etc.
Look you ask why other companies don't do this and the answer is simple, they can't get away with it. Every cable company on the planet would love to have invented the practice. I could even see this ad happening:
"Super Def TV"! Only Available on Xfinity! Get your Super Def TV today with 2 year cable contract.
Hell, they already do this with DVR's. Why don't people just buy a TIVO or TV with cable card slot instead of paying Comcast $15 a month for a DVR? Because they don't think that way.
The real answer is that companies have figured out that most people won't sit down and do the accounting to figure out what the true amortized or depreciated cost of any item is over the long term. They instead just look at the advertised price and compare apples to cats.
American's don't think, "I have enough cash for that." They think, "I have enough credit for that." and could give two shits that the item costs them 200% more over 2 years. The only way to fix it is to make credit harder to get but then our economy would collapse (sooner) so.... yeah bring on the credit bubble baby!
I just bought a new Galaxy S4, cash up front, and bought pre-paid service for it. Before that I had a Droid X, for which I paid cash, and with which I had pre-paid service.
In my opinion phone contracts are for chumps and despite all the evidence I try to think of myself as not a chump.
If you live in Madison, WI I suggest U-Wireless.
Really, Why Are Bennett Haselton Articles Still Being Posted?
I knew going in that I'd be keeping it longer than the average user who must have the new thing every 18 months. Thus, it was cheaper in the long run than to be paying a carrier for the cost of financing.
---- The above post was generated by the Turing Institute. Maybe.
I worked as a programmer for the sales & marketing arm of a cell company, 6 years ago. It was quite clearly stated (internally) that they wanted to get out of the subsidy business, but they couldn't. They were too small to take the risk of being the first or only to do so in their market. So long as other carriers were offering subsidies with their contracts, making the move would be suicidal. We probably weren't the only company in that situation, but unless you could come to some grand bargain, nobody was going to move first.
Smartphones are like most other consumer electronic goods which need some form of service contract to get the most out of.
- Satellite/Cable box - free, but you can pay more to get a PVR.
- DSL/Cable Modem - free, but you can pay more to get a fancy WiFi router.
- Smartphone - free, but you can pay more to get a better model.
Not sure what the difference is and why this key point was missed in the blog.
Backup not found: (A)bort (R)etry (P)anic
I refuse to pay $60/month for cell phone service. I'm switching to an MVNO that offers per-minute charges. Yearly cost will only be around $50 a year.
What's surprising is that the major carriers won't allow smart phones without data plans (so no per-minute plans with cheap Android phones). It's really infuriating the restrictions some of these companies place on their service. I'm surprised MVNOs even exist.
...apparently T-Mo is now America's fastest growing carrier. So maybe they're on to something.
Downmodding is the refuge of the weak. Don't downmod, make a better argument!
After 2 years on contract my plan does not go down by the rent price of the device. So I have no incentive to keep paying the high price without getting a new device. At least this is how it worked until very recently.
"Extended Warranty! How can I lose?" -Homer
As a consumer in america ive always had the choice of locking into a 2 year contract and receiving my phone at a subsidized price, or paying full price. the first month is still prorated but i always choose to pay a little extra for the privilege of actually owning my device instead of the plan, which feels more like renting. your ultimate penalty for shunning a wireless carriers extreme savings deal on a bundle of contractual nonsense is add-on fees from hell and quite a bit more marketing than normal. I've been charged $25 just for the SIM card, $45 for activation, and another $18 for some amorphous 'network initialization.' Theyll even try to sneak insurance and free replacement in. since cellular jocks in strip malls are payed a commission for contracts they rope people into, you're also going to get some pretty lousy service once they realize you chose financial independence instead of indentured servitude.
yeah, Haselton is right. cellular isnt about the phones or the cases or extras, its about contractual service agreements that ensure repeat business. companies use nice electronics and catchy tv commercials; whatever it takes for the dog to bite. you can stick it to them by being a lousy customer. refuse to upgrade every 4 years as youre instructed to by the moving pictures. use an adblocking hosts file. root your phone, and use its data monitor to ensure your data plan, which should be 500mb or less, is never exceeded. use wireless access points and VoIP across them. disable opt-in advertising by sms and opt out of mail flyers.
Good people go to bed earlier.
For years, companies (and even some government entities) basically kept saying "can't afford something, no problem, finance it". Which is fundamentally what caused the meltdown in '08 -- too much borrowing, and financial institutions giving out credit like candy to people who couldn't pay it back.
People have been conditioned to believe that their wants are in fact needs.
Can't afford that $700 smart phone? No problem, get it on credit. Can't afford the new sofa for your house? No interest no payments. Can't afford that new house? We'll give you a mortgage anyway.
When your buying public doesn't really understand credit, and when everybody "needs" to have the latest and greatest thing, the lure of convenient monthly payments (which you may still not be able to afford) solves your problem.
If the average America has $15K in credit card debt, you seriously have to ask why people buy their phones on an extended contract?
Seriously, you're trying to find the answer to a far broader issue than just cell phones.
Lost at C:>. Found at C.
For the same reason that internet, cable TV, etc. are sold this way (not always, but typically). Why are we still paying for 300 channels, of which we watch maybe 5-8? Because that's how they sell it!
Contracts are not designed to be good for the consumer, they are good for the seller. And as long as all or most sellers have similar plans and prices, they can get away with it.
We're all about the here-and-now cashflow.
What gets me what I want right now for the lowest apparent monthly nut.
As a former AT&T customer I guarantee the cost is even higher than that, but you'll never know how much the fees and taxes are until you start getting bills, and they'll never be the same month to month.
I have pre-paid service now. I pay $29.95 a month and I'm comforted by the fact that it is literally impossible for the carrier to charge me overages, or special taxes or fees, or whatever "fuck you" charges they want to dream up.
Yeah I just paid $430 cash for a refurb S4. It's definitely expensive. Compared to my previous phone, though, two days' wages is a good deal for the upgrade.
The t-mobile service works for me very well. I bought my Nexus 4 and pay about $30 a month to T-mobile. In exchange I get unlimited texts, effectively unlimited data, and 100 minutes (which I hardly ever use up). Pretty good going.
When cell phones started to permeate the market, somehow they all ended up being subsidized by plans. I'm sure there are reasons why this happened (I have some ideas), but I'm not going to speculate.
It started to become apparent to some people that this was not actually a good deal for the customer, and some consumers and companies have negotiated a new mutually beneficial deal (e.g. T-mobile gets more customers, and it's customers get a cheaper more rational experience).
I think the main force at work here is just momentum. There was a lot of people who were just used to 2 year contracts and free cell phones. It wasn't the optimal solution, but it requires no mental effort to stick with what you know. Unless you have a really bad experience, the inertia of laziness is pretty influential.
As more and more people switch to T-mobile, the other telecoms start offering similar plans, and it requires less mental effort to switch. I switched as soon as T-mobile announced their new system. I was fed up. I didn't know if I would like it. Now my friends have the benefit of having me as a guinea pig, and switching to a plan without subsidies is less of a mystery.
I don't think that phone contracts were exceptionally hard to understand if one really takes the time to analyze them, but mpst people just have better things to spend their time on than exploring the intricacies of phone contracts.
THIS! I totally think it is this.
When I sit down and wonder why cell phones work the way they do, or why certain features on products get named and promoted the way they do, I think it's because of American business schools. I think they teach a specific religion of how to conduct business which taints the brains of the people who go on to lead our economy.
I went from $80/month phone subsidized 2-year contract to $45/month no contract BYOD on AT&T.
I've been under a pay as you go plan for a little under a year and I'm ecstatic, it costs me about ~$12 a month for minutes, texts & data. I used to pay ~$50 a month with my previous "subsidized" phone & service equating to a total yearly cost of almost $600.00. With my new service I've bought I think 3 refills ($25 each) over the past 7 months and two phones (one used one died ($35) and the one I'm currently using ($75)). Unless I have to buy another phone or my usage Really increases I estimate all included my yearly cost will be 1/3 of what it was under my previous service. (Note, I don't use a lot of data, text or make many calls).
That's an FCC-created problem.
This is based on a lot of assumptions. One is that being "locked into a contract" is a big deal. As an adult I need a phone to operate in the modern world, a cell phone and ideally a smart phone (particularly given my career). I know that I will need this service, I know that I will almost certainly need this service for the next two years. What is the harm in signing a contract. The chances that I will need to break it are extremely low. Ultimately the extra cost I pay pretty much works out to the discount I get on the phone (it might work against me a bit but its not like buying something on a payment plan is that odd or indefensible either) not everyone can drop 600 bucks on a new phone, maybe they would rather drop 300 and pay 300 over the next 2 years.
Admittedly the place were you get screwed is if you don't update your phone in 2 years but since plenty of people want the latest and greatest this really isn't an issue and if you don't want a new phone you can switch to a provider like t-mobile.
Now this does leave the question of why T-mobile is providing contract free wireless. I believe the reason is that they can't compete with AT&T or Verizon. They don't have a good service so they need another differentiator. Having lower prices is part of it but also offering contract free options to people who actually don't know if they will have a phone for the next two years or who want to buy a phone so cheep that getting a break on its price doesn't really make sense. Frankly though, that 10 bucks a month you save bringing your own device doesn't work out to be a huge savings in the long run if you are buying a new high end phone every 2 years anyway.
This idea that there is one true way to buy or sell services or products is asinine. Different things make sense for different people. Comcast wants to push its contract free offers in counter point to Verizon Fios but since I know I will be in my home for two years and I will need an internet connection that whole time is it really that big of a deal to sign a contract with verizon for those 2 years? People are convinced that contracts are always awful but for many people they really don't make any practical difference.
"In America, first you get the sugar, then you get the power, then you get the women..." -H. Simpson
I bought a new Droid Incredible 2 on ebay for my phone with no contract. I don't think you can get the latest & greatest but you can get some pretty good smartphones without signing up for a contract and at a price far lower (mine was ~$80 with shipping) than what it would cost for a top of the line one from a carrier.
> For a purchase, you make payments on a $50K loan.
> For a lease, you make payments on a $25K loan, and at then end you either buy the car for $25K, or return it.
Not so much. For a lease, there is often a leasing company that makes the payments on the loan, collects the payments from the driver, and has a 35%-40% gross profit. In other words, the driver is paying 35%-40% more by leasing.
You can put actual numbers for a specific lease offer in this calculator to compare:
http://www.edmunds.com/calcula...
I think you'll find it's more like:
For a purchase, you make payments on a $50K loan.
For a lease, you make payments similar to a $35K loan, and at then end you either buy the car for $35K, or return it and pay mileage and other charges.
Meanwhile, I just paid $12K cash for a 2011 model. While you're paying $700 / month to appear wealthy, I'm investing that $700 / month to be wealthy.
Haven't signed a contract in 3 or so years since I left Sprint (and Verizon before that). I've been on T-Mobile with their sort of hidden $30/month plan of 5Gb 4G data, unlimited text, 100 talk minutes. I say it's sort of hidden because this rate is only available if you start a new account online. I never gab on the phone but I do surf and stream alot so this works for me. Currently using a Galaxy SII which is more than good enough.
I could buy the point the contracts are bad only if there is difference in the plan pricing for contract and non-contract plans *for the same provider*.
All of the top 4 providers have the same plan pricing irrespective of how you get your phone.
So if I anyways need a phone for next 2 years, it would be dumb to pay full price (e.g. $700) and stay out of contract rather than have a discounted ($200) contract phone for the same freaking price plan.
The alternative options aren't easy to find out about all the time. I don't know if I would save much by just buying the phone upfront then getting a cheaper plan. I don't know where those cheaper plans are listed.
What are your rough rates per minute though? If I'm charged $0.05 per minute for outgoing and incoming calls but in Europe they charge $0.10 per minute for only outgoing the only advantage goes to those who don't make calls but wait for their friends/family to call them.
The author assumes that two-year "free phone" plans are a ripoff, but offers nothing to support that assumption. The simple fact is that people are not fungible. Different deals appeal to different people for different reasons. T-Mobile has found a business model that gets it a few more customers. But there is no reason to assume that it will displace the contract model completely, or even come to dominate the contract model.
I was on Verizon using a Droid Razr Maxx HD I bought a year and a half ago. I'm on their cheapest plan (2gb data, unlimited text, 400 min talk I think). But I typically go 2-3gb over the data allotment every month. Bottom line, my bill with fees and taxes and overages (and a 15% discount) ends up being around $130-$150 / mo. Now I'm on a Nexus 5 bought outright through the Google Play store, and using the TMobile WalMart $30 / mo prepay plan (unlimited data, unlimited text, 100 min talk). I'm extremely satisfied with this solution, just wish I'd done it earlier.
That's a very interesting explanations. It fits all the facts and I can't think of any loopholes on it. Could that be the entire answer?
Although, it doesn't explain one thing -- why the carriers didn't just encourage you to pay full price outright for the phone, and then go month-to-month for the service. (You could always do this, of course, but companies like Verizon didn't give you a discount on the month-to-month service even if you paid outright for the device, so the choice made little sense.) Surely having you pay the entire cost of the device up front, is preferable for them than having you enter into monthly installments.
Maybe that's the thing the OP is missing: EVERY user is actually subsidizing these phones, not just the purchaser?
To get Bennett "I can't just waste my own time, I have to waste other people's time too" Haselton his own EC2 or Azure instance so he can post his drivel all he wants without bothering the rest of us.
Yeah. I guess that wouldn't really get rid of him. But I can hope, can't I? Sigh.
No, no, you're not thinking; you're just being logical. --Niels Bohr
And I have to ask the author: why would I need to change service providers so often? Why would I obsess over my phone bill and need to change providers every few months? I think that maybe some people, like the author of this article, just have too much time on their hands.
When I need a new phone, I get a phone, sign a 2 year contract, and forget about it again until my phone dies. I have much more interesting, useful things to do with my life than worry about how I can get a cell phone without cell phone service, or vice-versa.
I have to wonder if "Bennett Haselton", argues with car salesmen about being "forced" to buy tires with the car when he buys a car...
I don't respond to AC's.
I'm trying to come up with an explanation that makes realistic and consistent assumptions about the stupidity of the buying public
Well let me save you the trouble, stupidity defies realistic and consistent assumptions, as Einstein said "Two things are infinite: the Universe and human stupidity; and I'm not sure about the Universe.”
"If any question why we died, Tell them because our fathers lied."
The author might want to walk into an ATT store these days. I was off-contract and wanted a new phone. Guess what, I bought my phone and I am still off contract meaning I can leave at any time because they didn't tie my phone purchase with my contract.
No if you do some more math, and subtract out the cost of the phones (with margin) you will see that the profit-line for the rate plans is pretty low, which means they are making plenty of gross margin on the phone and the plan.
Same is therefore true for the BYOP plan.
They are only losing money on paper, do to the heavy-weight of band license costs at auction and the investments in infrastructure and plant.
If you broke your two year contract, you had to pay an early termination fee, which was usually around $350 for a smartphone. During certain pricing promotions, it was actually cost effective to, for example, sign up for a Galaxy S3 and intentionally break the contract to get the phone for a lower price than the full retail cost.
Now, on T-Mobile, you can either buy your phone outright (which is essentially like paying the termination fee upfront!) and leave anytime you want, or sign a contra..... er, finance agreement and if you break the con..... damn it, I mean... agreement, then the remaining balance becomes immediately due. Since most of the down payments are pretty low on T-Mobile, the remaining balance can be quite large depending on how soon you cancel after signing up and the full price of the phone you'd purchased.
In a nutshell, they've gone from a "fixed" early termination fee to "variable" and put a marketing spin on it. They're also mostly focusing promotions on their "low down payment" aspect of their handset financing, rather than running sales that lower your total effective cost. Meet the new boss, same as the old boss.
About the only good that came out of T-Mobile's un-carrier strategy is that they forced AT&T to finally lower their prices and spawned AIO (recently re-branded as Cricket). AT&T's network sucks substantially less and for $35/mo for unlimited talk, text and 500MB of high speed (w/ unlimited throttled) data is a good enough value for me.
---
DRM is like antifreeze, to the MPAA/RIAA it's sweet, to the consumers it's poison.
Really, Why Are Smartphones Still Tied To Contracts?
They're not.
That's just how the industry grew in the US because people would rather get in bed with an ISP than actually PAY they smartphone. That's not how it works in the majority of the rest of the world.
Why don't other companies sell similarly-priced goods the same way?
Rent-a-Center, Aaron's, Buddyrents, ColorTyme, Best Way, Rent-2-Own... there are dozens (if not hundreds) of companies that offer rent-to-own deals on virtually everything. They all have the same business model; relatively low payments that add up to ridiculously high prices for things.
The reason it works is simple; people love immediate gratification and will take very bad deals to get stuff now rather than being patient and saving up for it.
So a possibility (I don't know the phone biz enough to be sure) could phone manufacturers be giving the Carriers something of value that makes doing it this way kind of like car companies and dealers. Either sales $$$ after certain units are sold, certainly coop marketing $$$ come into play and even the right for the carriers to do their own stupid things to the phone. If someone is buying the phone outright are they going to be less likely to want a Verizon co-branded phone with extra crap on it?
I'll want the right to put the phone on another carrier since its "MY" phone.
The biggest reason is that for ISP's Cell Phone carriers is "churn" the cost and losing and obtaining subscribers. This costs them the most potential loss of profit.
So the old method pretty much locked someone into the carrier for two years. Yes they're sort of locked in on installment, even T-Mobile the balance is due if you cancel their service but you'd only owe the balance not the early termination fee (it probably works out to the same price anyway). So making sure customers will stick around was a big thing for the carriers.
Printer manufacturers use the same pricing model (they lose money on the printer and make it back with the ink/toner). You tend to see this anywhere a product is tied to a single recurring cost that can some from a monopoly provider. If it were legal for a real-estate developer to sell a house at a loss and gouge you on utilities, you can bet they'd do that too.
Why is it that cell phone companies previously found it profitable only to sell phones on contracts, and now find it profitable to move slightly in the opposite direction?
Why were things so expensive before? I think it's simple: Collusion.
Previously, no cell phone company offered significant off contract savings for bringing your own device. This is all beginning to change with the advent of the iPhone and the drastic cost difference between high end phones and lower end Android devices along with cost negligible feature phones. The cell phone providers are beginning to see that there is benefit in differentiating themselves by offering non-contract discounts and so the benefits of colluding are decreasing. I believe there's still a lot of room for prices to fall.
Now, to the point of the savviness of consumers, offering long term payments and bundling are absolutely an effective way to obfuscate the cost of a product. Just take car sales for example: There are countless number of "payment buyers", when deciding how much to pay for the car, they think in terms of $xxx/mo. So it's only too easy for the greedy dealer to just up increase the loan amount, or interest rate on the loan to hide the real price. This is a real and effective sales tactic that is alive and well, and operates on basically the same principal since most consumers are programmed to think in terms of dollars per month. The average consumer is such a poor decision maker that it wasn't until recently with the changing cell phone landscape, that market forces were strong enough to make cracks in the united front of collusion by the major wireless providers.
-- Knowledge shared is power lost. -- Aleister Crowley
Just like expensive cars on leases, there are lots of iPhones on contracts out there...but not everyone can afford theirs.
Although I did not write it out, I had that exact thought in the back of my head - I know there are a lot of people with smartphone and lease contracts that are beyond what they can really afford. I think that's what made me think of a lease being similar in the first place.
"There is more worth loving than we have strength to love." - Brian Jay Stanley
By roaming on the network to which you do not subscribe that uses the same air interface and has better coverage. For example, T-Mobile users can make 911 calls on AT&T.
Generally they do not even need to go that far, selling your debt to a collection agency tends to be pretty effective.
Though, paying $10 a month (or anything) extra for tethering is a chump move, seriously.
What's the alternative in the US market? Is buying a separate USB stick or Wi-Fi AP and paying for a separate plan that much better than tethering? Carriers charge extra for tethering because people who use tethering are more likely to use up all the data airtime in their plan rather than letting some data airtime expire at the end of each month.
I've got a Nexus 5 purchased off contract. I can take the device to Sprint, AT&T, T-Mobile, and presumably at least some of the smaller carriers
How does that work? Does the Nexus 5 ship with support for both GSM/UMTS and CDMA2000 networks?
Even in the States, many carriers have bring-your-own-phone programs.
A discount on the plan for not taking a subsidized phone is a fairly recent phenomenon.
What the heck is this guy thinking? AFAIK, every cell phone company will sell you a phone and service separately with no contract. You simply pay full price for the device you want, and buy the service. Or you can buy the device from a third party and as long as it's compatible with the network, buy the service. It's not rocket science, it's not hidden, it's not even particularly unusual.
That would be the reason that when you browse a carriers online store you see the price of the phone and the discounted price with a contract at the same time.
Some people just want attention, I guess.
They make more money when they do it this way then when you would not do it.
The only one loosing money is the customer.
Comparing prices is not really possible. They just place the 'free phones' at a much higher price, so they can sell in higher volumes to the telco. This becase people compare prices and think they are smarter then the lawers and marketing teams together. Higher volume means lower overhead so higher profits for them as well.
And by 'they' I mean both producers and telco's.
The thing is: when you can't afford the phone at full price, you can't afford the phone with the plan. Buy a cheaper phone.
Don't fight for your country, if your country does not fight for you.
You're just financing your phone.
Then why doesn't the bill automatically go down after 24 months to reflect that the loan is paid off?
Consumers lack of math skills to do simple math calculation. When they see initial cost of $600, no one would want to buy a phone. When they see $0 phone for $60 / month for 2 years, that becomes more chew-able even though the latter wouldn't make economical sense.
So how should an American go about gaining the legal right to live and work "in most of the world"?
The cell companies built the cost of the phone into the contract. The contracts for bring-your-own-phone are not discounted sufficiently relative to those with for individual customers to justify buying their own phone. Cell companies have less churn with 2 year contracts and need them to keep cost of acquisition of new customers down, so without an existing competitive market for BYOP contracts at a properly discounted price, they have no incentive to change. Unless a significant number of consumers pay the increased cost of going with BYOP to create a proper market, it won't happen.
Because people are still signing that god damned contracts.
Lisias@Earth.SolarSystem.OrionArm.MilkyWay.Local.Virgo.Universe.org
ignorant person?
"Bennett doesn't understand the concept of up front cost vs financing and why one may be more attractive than the other"
Or, you could just read 1200 words of stupid instead.
-Styopa
The phone looks cheap, so it sells well, and they make it all up and more on the back end.
Why don't other companies sell their stuff that way? Because other companies aren't selling a product that must be tied to a service to be useful.
True, but they use the same process after they harass you a bit; simply filing a suit which normally gets an automatic garnishment. ( hard to fight a contract breach in court... )
---- Booth was a patriot ----
Money.
Specifically your money going in to the pockets of carriers.
Why is this even a question? The only thing you can trust a large publicly traded company to do is rip you off as hard and as fast as they legally, or semi legally, or illegally can (The later they think they can pay off congress well enough)
Just buy the smart phone separately. Buy it off the internet. Then buy a sim card from one of the many cellphone plan retailers. Match a to b and you're good.
I've decided to stop wasting my time responding to AC trolls/sockpuppets... so if you want a response from me... login.
Complacency of the subscribers is the bread and butter of the Verizon's and AT&T's of this world. Say the carrier subsidized your phone, knowing well that, at the end of the contract, they will have recouped their subsidy. And also knowing well that, you will not jump ship on the 2 years + 1 day point in time, while they are still charging you for the same rate that provided the subsidy payback to them. So, as long as you stay with the provider past your contract end, they are doing a double whammy. And most of the people fall into that category. Take me for instance, it took me a 9 months before I cancelled my service with VZW after my contract with them ended and go with Virgin Mobile. And I am a price conscious customer, who happens to be a nerd, a geek, a technologist. So, I have no excuse. If I am like that, think of the average Joe. He is hopeless and the cash cow for the carriers.
__________
The more I know people, the more I love animals
um, Republic Wireless...
The answer's pretty simple: Lots of people go more than 24 billing cycles before they upgrade their phone.
Some people just forget. Some people are waiting for a particular phone. Some people don't even realize they CAN get a new phone.
I worked with a guy who was paying Verizon a standard, subsidized phone rate. He was using a 4 or 5 year old flip phone. No kidding. I literally had to bowbeat this man into getting a new phone.
This is free money for the carriers. Heck, the last time I had a subsidized phone I kept it for 27 months. I was waiting for the Nexus 4 to come out, and it just wasn't worth the hassle of switching carriers or SIM chips to avoid 3 months of "overpay".
Given that I just did that, I'm not sure where you're getting your information from. We live in New York, just bought a MotoX off contract, popped a T-mo SIM in it and are good to go.
No, they don't realize they are being fleeced.
Yes, they are that gullible.
Phones are sold that way because they have always been sold that way, or at least for as long as the people the other two descriptions apply to can remember.
Trying to apply this business model to another market with an existing sales model will fail. Look at attempts to push "free" home computers tied to costly Internet access subscriptions or notebooks locked into data plans for examples of this.
The reason that the first two questions seem so complex is that the answers don't apply to everybody. Some people do realize that paying $40 a month for three years is not the same as getting something for free, but they are the outliers. They can, if they dig around enough, find alternatives which save them some money but these mostly involve leaving the big telecom players, who don't want cheapskates as customers anyway, so that problem really just solves itself.
> $50k loan and only make payments on $25k of it. That is, I pay interest on the full amount, and just make payments until the principle is down to the residual value.
That, plus the billion dollars per year FMC makes borrowing the $50K and leasing it to you.
You ever wondered why the auto companies push leases? Because they make a shitload of money on them, that's why.
I prefer to be the one on the receiving end of that deal. I do hope you enjoy that car 20 times as much as I enjoy mine, because inthe end, you're paying 20 times as much.
That $600 smart phone? It really didn't cost the carrier $600. I'd be surprised if it cost half that wholesale. So this is a great opportunity for the service provider to keep the customer confused. The phone is cheap. The service is cheap. But try to figure out what you should be paying for each as a reasonable rate.
that scam should only work on a particular customer for... two years, and then they would be wiser the second time around.
Oh! My sides hurt.
Have gnu, will travel.
This, kids, is why the US consisted of three thin bands - along the Atlantic & Pacific coasts and the Mississippi river - until the mid 1990s.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
I actually like the contracts and the benefits they provide as they are certainly cheaper for me and the way I use my phone.
Currently I do this:
Every year I pay $200 for the new iPhone.
Then I pay $50/mo for my service which includes minutes and unlimited data.
Then at the end of the year I sell the 1 year old iPhone that I kept in great condition for $300.
So at the end of the year my total cost was $500 (200 + 600 - 300).
If I were to go with no contract a new iPhone would cost me $650 for the same phone. At the end of the year I would still get the same $300 back when I sold it. So I would have paid $350 already. This means my monthly cost for service needs to cost $12.5/mo to make my total cost paid for the year be the same $500 I am paying now with a contract.
The contract discount is worth $450 a year in my case so the monthly cost for the service needs to be $450 less per year in order for the contract and off contract to be the same cost for me.
Baaaaah!
Seems telcos are using phones and contracts to lock people in as much as they can as they know they will otherwise switch operator to one that is not bundling a bunch of services they don't need into a blob and charge a monthly rate for it.
No thanks, I'd rather pay for what I use, and at a acceptable rate. The phone is easily bought unbound and that allows you to use a local subscription when abroad too. Something they really don't like.
You've mentioned most of variables that go into calculating a "fair" lease payment. Sure, you can calculate a payment that way. Isn't it interesting that after all of those calculations, over half of all lease customers end up with a payment of $X99 / month. That's sure odd, isn't it.
Why all of these leases at $X99 / month? Do you really think all (or most, or even 20%) of lease contracts start with the customer and dealer negotiating the cash value of the car? No, they start with the "value" of the car being full MSRP plus $800 for dealer rust spray and $400 floormats. That's step 1 of screwing the customer.
Could it be that the average American doesn't know what a good money factor is? Maybe someone, somewhere, doesn't know how to compare a given mileage penalty to a straight purchase? Ever wondered why leasing companies, and only leasing companies, use ALG values, not NADA, KBB or anything else any US consumer would recognize?
Subsidized Hardware.
I can get a new iPhone each year if I buy it myself. I get a subsidy with AT&T, and they can charge me whatever they want monthly as I charge that to my company.
There are several Verizon BYOD pre-paid providers. The oldest, Page Plus, has been around for over a decade. Straight Talk started VzW BYOD about six months ago.
Page Plus will accept any VzW 3G device that is not reported stolen and was not originally sold for VzW "native" pre-paid. Officially, they don't accept iPhones, but this restriction is routinely ignored. They will also unofficially accept "flashed" 4G CDMA devices, and there are plenty of online and B&M retailers that will do this for you for a small fee.
In addition, some Sprint phones can be "flashed" over to VzW/Page Plus. The phone I'm using now, a Boost Moto G, was.
The assumption that a consistent explanation can be found ignores all of the history of a business, the history of that business sector, tradition or consumer expectations, and whether the business is desperate enough to disrupt all of that.
You have to assume everyone has the same information to base their decisions on, and then explain why they reached different ones.
It's like an introductory econ course where reality takes a back seat to consistency. So there is not an incorrect statement, because the wrong parts are unstated.
The simplest explaination as to why consumers historically tended to prefer buying phones on contract vs putting those same phones on a credit card is that it's often better for both the consumer and the carrier. The carrier benefits by reducing churn (it costs more to acquire a new customer than to keep an existing one) while keeping modern phones in the hands of their customers. The customer benefits because they get access to all the latest infrustructure. In terms of pure cost, it would cost the author about $20/mo to put his Nokia 920 on a credit card and pay it off in 2 years and only $15/mo to buy it on a 2 year contract. He mentions that T-Mobile will let him pay it off at $11/mo but at that rate it would take him 3 years so what's it worth to you to forgo a new phone for an additional year?
So why is this starting to change? Because the improvements in phones are starting to flatten out a bit. The difference between my first smart phone (Moto Droid) and my second one (HTC Rezound) was like night and day but the difference between my Rezound and a HTC One or Samsung S4/5 is not nearly as significant so stretching out the life of the phone an extra year is not nearly as big a sacrifice as it was a few years ago.
BTW his contention that the phone industry is somehow unique is false. The average American has somewhere between $7k and $16k of credit card debt so it's clear that people really ARE borrowing money to buy all sorts of regular consumer products. The reason cellular service providers are willing to loan the money to consumers for a bit less than credit card companies is because the service providers benefit from having customers with the latest gear.
That's one of the most well-articulated statements as to why Bennett's posts are worthless. Thanks!
I feel I should point out I was being ironic in my original post. In the comments for previous essays by Bennett, he has attempted to defend himself by challenging everyone to find any incorrect statement. Of course the lack of incorrectness is ludicrously insufficient to justify his posts, as you point out.
If people didn't buy the cell phone through a subsidy, then they might not buy it from the cell phone company at all since there would be more competition. Not only would the cell phone provider lose out on the sale of the phone, they would also probably lose out on the really high-margin accessories/warranties that most providers try to push on customers. This is probably a very significant revenue source for the cell phone companies.
Monstar L
People don't calculate total costs, period.
Can he please find some other sandbox to play in?
As my company's telecom manager, I probably have a somewhat unique perspective on these issues. The article is spot on in that people, in general, do not realize that the real cost of smartphones is $500+, they've been brainwashed to believe that the subsidized price is the price and that cell service costs $80-100 a month.
This worked fine until someone came up with a better model because people want high end devices, but if you look at the number of people that can afford to spend $200 on a phone vs those that could afford to spend $600 I think you'd agree that without some sort of subsidy or financing for these high end devices that Apple's stock price would not have done nearly as well as it did after the iPhone was released.
T-Mobile says they did away with contracts, but that's not what they did at all. They just disassociated the subsidy of the phone from the wireless service, so on AT&T or Verizon you buy a phone for $200 then you pay $100/mo for two years, total cost $2600. On T-Mobile you finance the phone and pay $25/mo toward the phone and $50/mo for wireless service, total cost $1800, savings of $400 a year over the AT&T / Verizon model. This works because T-Mobile will subsidize your ETF to get you to switch over from AT&T or Verizon, so they're racking up subscribers like crazy.
What will be interesting is to see how the game plays out. There will eventually be a tipping point where AT&T and Verizon realize they can't continue hemorrhaging customers so they'll step up and play ball cost-wise. The whole notion of competition in a free market increasing customer choice and driving down price really is a great thing.
Personally, I'm surprised someone hasn't stepped up to take the T-Mobile idea to the next logical level. Why hasn't a financial institution stepped up to be in the market for financing phones, so the cost of the device is totally separate from the cost of your wireless service? To make the requisite car analogy, you don't go to a car dealer and sign a contract with them to finance your vehicle. Well, you can, at a buy here pay here type of place, but in general for new car sales the financing of the car is totally separate from the entity that sells it to you.
Why aren't cell phones handled this way? There's plenty of money to be made for someone to finance phones. The whole idea of phones being locked to a certain carrier needs to go away as well. You have Verizon iPhones and AT&T iPhones and if you have one for one network, it won't work on the other network, even if it's unlocked. That's silly. Verizon phones can speak GSM (otherwise they wouldn't work outside the USA), so why isn't there a single version that will work with any carrier?
When I eventually do upgrade, I will not be buying an iPhone subsidized but rather I will buy one directly from Apple. That way, I can choose the best carrier available at the time and save a lot of money over the long haul.
Always consider the long term cost of ownership.
Jesus was a compassionate social conservative who called individuals to sin no more.
I see lots of people complaining above BH stories. While we cannot filter on the stories (only the editors), the web is OUR web. Tampermonkey script: http://userscripts.org/scripts...
Tracfone, those others I can't think of, and some other startups are all crushing traditional carriers. They operate cheaper, leaner, meaner, and more fair with more customer appeal. Everyone is losing customers left and right to ones like them. In several years, there won't even be carriers if they don't get their shit together.
Because they can be
If his thoughts are solid, why does it matter? If you're interested in fostering a meritocracy, shouldn't the quality of his thoughts be of primary concern, not his background?
I purchased a Samsung Galaxy S-2 prepaid phone from T-Mobile (albeit a refurb) for $144 + tax/shipping (aprox $160 total)
- add a Straight Talk Sim kit from Walmart - $60 (includes 1st month of service - unlimited Talk/Text/internet)
Root the phone and install newest version of Android (currently Kit-Kat) - free
Install Google apps and Google Voice - free
I have a full featured 1.5ghz dual-core GSM android handset (video is not quite as high resolution as the new S5, and Camera is not as high-res either), am NOT locked into a contract, and have 2 phone numbers (Google Voice and the real number from Straight Talk).
I give out the real number to my inner circle and everyone else gets the google voice number (which I can black-list, record, screen, etc..)
If I get fed up with my carrier, i can switch to another and not have to play the number-porting game - as most calls come thru via Google Voice.
My phone cost (including 1st month of service) is $220, each month thereafter is $42.50 (final cost - no tax, no fees, not BS - just $42.50 - auto-billed to credit card)
When new OS features come out, I mod my ROM.
It works GREAT!!!
The contract is there to get you accustomed to the idea that it is their Internet, the idea that you are not anonymous, and that you are being watched.
The pay as you go phone makes it too easy to use cash to get online anonymously, and then you're worth nothing to advertisers or government.
Technology will save privacy because it's human nature. Now that we know that we're being spied on, there's no use in spying on us anymore.
One of the reason could be because some companies still reimburse only the contract monthly cost, and not for mobile phone itself. Some people do not want to use their personal phone, and prefer getting a new one, only for professional matters. In this case, the only way for them - if they don't want to entirely pay for a new phone - is to have a new contract, with mobile phone cost embedded.
Because people keep signing them. Duh?
This is only a problem in America from what I can tell.
In the UK and elsewhere in Europe, I buy my phone outright then buy connectivity to a network separately. I currently pay £12 per month (including taxes) for 300 minutes, 500 SMSs and unlimited data. The unlimited data seems truly unlimited so far.
We don't pay to receive calls or SMSs, so the low looking amounts shown there are more than adequate for my needs.
I change providers roughly once every 6 months as deals change to ensure that I'm getting the best possible deal, and I take my existing number with me at no extra charge.
Some providers are splitting out the cost of the handset from the airtime. You can buy the handset from them if you like - and they offer a hire-purchase agreement if it seems too much up-front (or just buy SIM-free, unlocked), and then the airtime contract can be pay-as-you-go or pay-monthly, which may or may not involve some minimum term. They can be bought at the same time, and the small print makes it clear that it's two contracts. The minimum term for airtime might get you some discount if you commit to staying with that service provider for a longer period. Personally, I bought my own smartphone nearly two years ago (it wasn't cheap), and just popped in a pay-as-you-go sim, with automatic top-up. I could get a better tariff that way.
With a two-year contract you are encouraged to think that you are getting a very expensive phone for free, and consequently it's not unreasonable that you are going to be paying serious money per month on the contract. Nothing could be further from the truth - the development costs on these things are not that much and the bill of materials is pennies.
Of course the geographical size of your country does not help - here in the UK we have 20% of the US population packed into a landmass half the size of California. I personally have a really nice phone that cost less than 100 pounds no contract, with unlimited data for 7.50 a month. Don't remember the last time I went out of coverage.
tl;dr It's a USA-specific problem
"Don't belong. Never join. Think for yourself. Peace." V.Stone, Microsoft Corporation
Smartphones are not tied to contracts. They've never been. There is not even one mobile provider on this planet that will refuse to hook your phone to their network because you didn't bought your phone from them!
Those "best explanations" are complete bogus, simple excuses for stupidity.
I'm at the 4th smartphone over 7 years, none of them came with any contract.
You have to understand your mobile service provider is not a phone manufacturer. They will never sell you a phone - they will try to sell you their services.
But there will always be idiots who are willing to pay double/triple masked behind "special deals", just so they don't put the whole money at the start and live under the impression they paid less. Every human on this plant wants stuff for free and the large majority end up growing old without realizing there is no such thing. And then go on the Internet to complain, like Bennett did. If you did that there is none to blame but yourself. Its not Nokia/Google/Apple's fault, its not Verizon/AT&T's fault, its not Obama's fault, its not the entire world that is wrong. Its your fscking fault!
Welcome to Slashblog...
Been doing this for two-ish years with Ting ( https://ting.com ) and a Samsung GS2. (No T-Mobile in sight.) Amortized monthly bill for me is ~$35 (and only decreasing as the up-front phone cost is diluted over more and more months). My situation is abnormal: I can live without carrier data and without texting. Of course, I can actually turn these things off and not pay for them, unlike most contracts for smartphones.
I think one of the biggest problems is that if I buy a Verizon phone I can't take it to another carrier. The carriers have us locked down with a big commitment ($300 - $600) and it isn't easy to switch carriers at that point.
I see Haselton making two competing claims.
One, that cell phones are more expensive than the sticker cost we are presented with in stores.
Two, that people who sign contracts are being ripped-off.
Well, which is it Haselton? Are the phones really that expensive or not? You can't have them be both too expensive and too cheap at the same time.
The idea that cell phones are sold at a deep discount is a total fallacy.
Cell phone providers set an arbitrarily absurd price that is two to three times the price that equivalent devices sell for in open markets so that they can make you think you are getting a really good deal, and so they can justify the price gouging for their services ("See Mr. Regulator, I need to charge these fees and maintain these contracts to cover the cost of the device!")
the above is my personal opinion and does not necessarily reflect that of the little voices in my head
on their business model of over charging for bandwidth and telling people how to use what they paid for like tethering.
And that would fail as fast as an Iphone battery.
Interestingly, I just went through this. First, I had to convince my wife that the phones *do* need to cost that much when I went out and bought three plain ol' phones and one Nexus 5 at retail. The total for all of it was about 600 bucks after I found three unlocked phones on Ebay. That's a big amount of money, and that's all she was looking at. However, when we went to the local AT&T store to set it all up, the manager admitted this is the smart way to do it because it's cheaper in the long run. And, if something better comes along, I can change plans without fear of an early termination fee (as long as it's another GSM network). So I have a plan that has two more devices than my old contracted plan, includes more talk time, more text messages, and costs 40 bucks less. I had to give up my unlimited data, but I have never used more than six gigs in a month between two devices, and my new plan allows much more than that. I don't have to pay an extra tethering fee. I don't have to worry about when I can upgrade again. It goes on and on. And now I don't need a home phone, so I killed that and lowered my internet/cable TV bill by 30 bucks a month.
I used Virgin Mobile originally; no contracts there. But I was paying for "Unlimited" everything-I-don't-need (text and data) and getting barely any real talk minutes (hey, ain't that the whole god damn point of a phone in the first place?) unless I started blowing 50-60 bucks a month on the service. That was unacceptable, so in my quest to find a) a phone that doesn't suck (too bad) and b) a service that will screw me the least (face it, they all do, in some way) while c) being cheap, I settled on Zact. You get what you pay for, literally, and you get no excessive garbage (like unlimited data, when you're already paying for home Internet) that you don't want. Contract? Nah, if I want to, I could buy a Republic Wireless Moto X, move my number to them, and switch to their service tomorrow. Fuck contracts.
I've used Virgin Mobile for the past six years, pay $30/mo and am as satisfied as I've ever been with any phone carrier.