Last time my smartphone contract expired, I ran to the Apple Store, bought the latest model, and signed up for another two years.
My contract is expiring again next month, and in the last two years, carriers have introduced a bewildering array of new plans. We have new low-cost carriers, prepaid plans, and bring-your-own-phone plans.
Phone contracts expire every day, and most of us could save money by choosing a new plan that more closely fits our needs and usage.
Before you spring for the latest device on your existing network, shop around.
I can’t walk you through every possible option, but here are a few questions to consider.
Contract or prepaid?
Prepaid plans used to be limited to flip phones and other simple feature phones. Not anymore.
Plenty of carriers offer prepaid month-to-month service for the latest iPhones and Android handsets.
There are two several differences between contract and prepaid.
- When you sign up for a two-year contract, your phone will be subsidized. Want a 16GB iPhone 5c? It’ll be $100 on a contract or $450 to $500 with a prepaid plan.
- If you break a contract early, you’ll pay a hefty early termination fee—up to $350.
- Prepaid plans don’t offer rollover minutes. (Does anybody use rollover minutes?)
- The carrier can’t raise your rate during the contract, which is not true for prepaid.
So far, it sounds like the contract is a no-brainer: cheaper phone, no surprise bill hikes. Naturally, you pay for this with higher monthly bills—much higher.
For example, on an AT&T contract, you’ll pay $95/month for 2GB of data with unlimited talk and text. AT&T’s own GoPhone prepaid plan charges $60/month for an equivalent bundle.
Include the cost of a full-price iPhone ($500), and you’re paying $71/month over two years, for a total savings of $576.
T-Mobile offers something of a hybrid between contract and prepaid: it doesn’t sell two-year contracts, but you can optionally finance the cost of your phone month-to-month.
When I started researching this column, I expected to find that contracts make more sense for some types of customers and prepaid for others. But that’s not the case.
Contracts make more sense for customers who enjoy shoveling money into a wood stove or who can forward the bill to their boss.
For everyone else, forget it: A contract lures you in with the promise of a cheap or free phone and then you’re stuck with a big monthly payment you can’t escape.
Even if you don’t want to research the most cost-effective plan for you, you’ll probably save a bundle by just switching to your existing carrier’s prepaid plan.
Your carrier is unlikely to call you up and say, “Hey, friend, how would you like to send us less money for the same service?” but an AT&T rep was happy to talk to me about the cheapest plan that would fit my usage pattern.
One exception: You can sometimes save money over prepaid if you have several phones in your family under contract with the same carrier.
But even then, it pays to do the math: many prepaid plans offer family discounts.
And if you have multiple family members with contracts expiring at different times, make a plan to transition your family from contract to prepaid.
It will almost certainly save you big bucks over the next two to three years, even if it means you have to juggle different plans during the transition.
Big Four or MVNO?
The Big Four carriers are AT&T, Verizon, Sprint, and T-Mobile. The first three are very similar: they offer standard two-year contracts or lower-cost prepaid plans.
T-Mobile is an oddball. It doesn’t do contracts. It doesn’t charge for international roaming. You can bring your own phone. And it’s cheap.
A family plan with three phones and 2.5GB of data is $100/month (or $60 for one line).
After years of being a distant fourth in the US market, T-Mobile is doing its best not to behave like a big cell phone company, and it’s working: the company added 1 million new subscribers in the third quarter of 2013.
T-Mobile is on my short list.
MVNOs are Mobile Virtual Network Operators. These companies buy network capacity from the Big Four and resell it. Prices and plan details are all over the place.
One of the better-known names in this space is Virgin Mobile USA (which is actually owned by Sprint), which has bizarrely cheap prices: their cheapest plan, which is fine for most people, is $30/month.
But you can’t bring your own phone, and Virgin doesn’t offer international roaming—you’re stuck buying a SIM card or carrying a wifi box when you go abroad.
Virgin is also on my short list.
An MVNO is also the place to go if you like carrying a smartphone but don’t use a lot of cellular data or voice minutes.
One MVNO that serves this niche is Consumer Cellular. Their target market is the elderly, but their plans are simple and cheap for everyone, and you can bring your own (unlocked GSM) phone.
For 100MB of data, 1000 texts, and 200 voice minutes, you’ll pay $25/month.
That may sound like an embarrassingly small helping of data, but if you have wifi access most of the time or use your smartphone mostly for games and as a glorified Google Maps device, it could be plenty.
The shock (to your wallet) of the new?
While devising prepaid plans to appeal to cheapskates like me, the carriers have also been working on gold-plated plans for the bleeding-edge crowd.
All of the Big Four offer contracts that let you upgrade your phone annually rather than every two years, and T-Mobile and Verizon let you upgrade every six months.
Lifehacker has a comparison of these plans. “Are Early Upgrade Plans Worth It?” they ask. Basically, no.
The only way this might pencil out for you is if you have to have the latest thing, want to stay in bed with the same carrier for a long time, and never sell your old phones.
Drum roll, please…I haven’t decided yet.
I’m leaning toward switching to an AT&T GoPhone prepaid plan ($40/month including 200MB of data) and then jumping ship to Virgin Mobile when it’s time for a new phone.
How about you? What will you do next time your smartphone slips out of contract? Or have you already made the leap to prepaid?
Tell us about it in the comments.