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T-Mobile recently announced that it would stop selling traditional
two year contracts with its phones, a move setting them apart from the other
big names in the cell phone industry. In a public event T-Mobile CEO John
Legere blasted these carriers including the company that just months ago almost
acquired T-Mobile, AT&T. Legre stated that "Customers don't need
another AT&T, customers need someone to stop acting like AT&T”.
It’s no secret that people don’t like the long term
contracts big carriers make you sign. Many people do it just to have access to
the latest phone, as Legere said “Customers love smartphones, everyone hates
contracts”. These two year contracts originally
came around for carriers to subsidize the cost of the phone upfront but customers
are beginning to wonder if they’re really worth it.
Cellphone contracts are something which many consumers have
begun to grow wary of and according to the New York Times the percentage of
no-contract phones is expected to increase from 18% in 2008 to 30% by 2015.
What’s the driving force behind this change? The biggest issue is definitely
cost.
Consumer Reports compared the costs of owning a 16gb iPhone 5
on a two year contract with big carriers or pre-paid with no contract and month
to month charges. The winner of the competition was Smart Talk, a company which
specializes in pre-paid, no contract cellphones. The initial cost of the phone
was a whopping $650 but with two years of unlimited data at $45 a month the
total cost was $1,730.
Sound like a lot?
It’s actually a savings of $1,110 compared to AT&T, who
also caps data at 4 GB per month instead of providing unlimited data like Smart
Talk. For a Verizon plan which would cap data at 2 GB per month the cost is
still a little less then a thousand dollars more over two years.
Also just the idea of being locked into the same phone and
company for two years is something difficult to get excited about. Logan Abbot, president of MyRatePlan.com
explained that in a no-contract system the carrier knows you can easily be gone
the next month making you more valuable as a customer which (should) make
customer service better.
It will be interesting to see how T-Mobile fares and if more
customers begin to take Mr. Legere’s words to heart and end their contracts for the freedom and flexibility of pre-paid phones.
Jeffrey Marino is a contributing
writer concentrating his focus on Business Administration, Management
Information Systems, and Tech Innovations. He blogs atFordham Nights and can
be reached at JMarino@iirusa.com.
