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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.