In the beginning, two year contracts got you the "FREE" Phone or $450 Instant discount towards one. Contracts also insured that whatever deal and/or promotions that you signed up for would remain available, even after the contract lapsed. The beauty of this is, if a better plan became available, it's yours for the asking. Once a carrier stops offering a plan though, those who signed up for it can keep it as long as they want, even after their contract is fulfilled and it reverts to a month-to-month situation. A perfect example of this is all of Verizon's legacy subscribers that still have their UNLIMITED Data plans, even though Verizon stopped offering these over four years ago. Verizon tried nearly every trick in the book possible to induce these subscribers to give up these plans, most notably by removing device subsidies for them.
In the old days, there were competing digital carrier technologies like EDGE, TDMA, CDMA, HSDPA, WiMAX and LTE (Long Term Evolution). Today, everybody supports one standard, LTE. True, there are 23 different LTE frequencies but we are moving to the point where one device will work with all carriers. For the last two decades, that dreaded two year contract with the $350 Early Termination Fees was more than enough to insure even the most unhappy subscribers "did their time".
T-Mobile brilliantly did away with contracts about three years ago. They then reduced their plan costs by $20 per month, and made all of their plans month-to-month. TM then moved "The Contract", from the plan, to the actual device. They then brilliantly encouraged users to "Bring Their Own Device", by either buying it at Apple, or having them bring their current devices over.
Subsequently, all of the carriers followed suit. They all now offer zero interest finance programs. Some also offer lease deals and/or "early upgrade" programs which essentially turn a financed device into a lease deal. While these deals all look very similar with their iPhone 6s/16GB for $27.09 x 24 months, there are some distinctions. Only T-Mobile lets subscribers double up on finance payments to pay off the finance contract early. With the others, you can pay it off in full early, or pay 24 months. Nothing in between!
The Playing field has finally been leveled and the carriers don't like it!
Have you noticed how all of the carriers are now trying to convince their subscribers that contacts on plans are no good and device contracts are much better? Much better for them and here is why...
If you are under contract, the carrier can not change your plan, terms, or conditions, even after it reverts to month-to-month. If your plan is monthly and the contract is on the device, your carrier can change the plan anytime they wish. The reality is the consumer now wins with the contract plan model. They are guaranteed that their current plan stays the same, even if the carrier comes out with new, less generous plans. On the other hand, should their carrier come out with a better deal, the contract users can always jump on it anytime for a WIN/WIN situation.
If you can still find a contract, take it! Consumers have never been better protected by contracts. Dr Wireless still offers contracts for Verizon and Sprint, in some cases. The biggest reason why contracts are now so great is they have never been easier to break. All four of the major carriers will now buy out your current contract, for up to $650 worth per line. That means an early termination fee of $350 means absolutely nothing now. Furthermore, since almost all SmartPhones operate on LTE technology, it has never been easier to move your current number, along with your current device to another carrier, termination fees, or not.
The other great argument for contracts is transparency. In the old days, the carriers built in that hidden extra $20 per month to help compensate for that $450 device credit they had to give every two years. They made an extra $30 per month on those folks who were not savvy enough to know to immediately upgrade their devices on month 25.
Ironically, now that Verizon discloses exactly what everything costs on their newest S, M, L, XL and XXL plans, I now love their contract plans more than ever for all of the above reasons. Believe it or not, while Verizon does not offer these plans with contracts in their stores, they still allow Dr Wireless to continue to offer them to both new and existing users. Yup! That means that $650 iPhone 6s/16GB is only $199.99 from Dr Wireless. Of course they would rather have you sign up for a month-to-month deal and save the $450 subsidy.
The way it now works in the stores and online is the above Data plans come with Unlimited Voice and Text. Verizon wants you to finance a device from them and they will charge $20 per line on top of the data plan cost and monthly device costs. With our program, Verizon charges $40 per line with two year contract, but gives the $450 instant device credit. If you do the math, you end up paying exactly $30 more for the contract plan vs the monthly plan over 24 months. Since Verizon will not change, or monkey around with contract plans, this secures your plan, even if they come out with more expensive plans for new users. It actually even gets better for our business subscribers who move their numbers over from another carrier. That's because Verizon will give an extra $150 port-in credit. Ask me for details.
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Joel Saltzman has over twenty years of wireless industry experience. He is currently CEO and Chief Wireless Analyst for Dr Wireless.