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Prepaid, Contract, Big Four, and MVNO: The Mobile Provider Price War

Last fall, I wrote a column about cell phone plans that struck a nerve.

Many of you, it turns out, are tired of being trapped in a two-year contract, paying an absurd monthly fee for cell phone service.

Go figure.

It turns out all of the major providers and plenty of smaller network resellers (also known as MVNOs) sell prepaid plans that are similar to the contract plans but cost much less, even including the higher up-front cost of the phone.

One such unhappy customer is my friend Becky. She and her wife have a two-line family plan with one of the Big Four providers.

After reading my column, Becky said, “I wish I’d known this a couple months ago when we signed up for a new contract.”

“It might be worth paying the early termination fee,” I said.

Becky called up her phone company and said she was thinking of switching to prepaid.

They warned her about all the great contract features she’d be giving up, like insurance (not worth the price) and rollover minutes.

Then they caved: Stay on contract, and we’ll offer you a “loyalty” plan for $60/month less than you’re paying.

Sixty bucks, just for making a lousy phone call!

Consumer advocates like Christopher Elliott are right: it never hurts to ask.

THIS MEANS WAR

It’s an interesting time to be a big cell network provider.

Thanks in part to the competitive moves of T-Mobile, cell phone plans have gotten a lot more interesting and more affordable in the past few months. There’s a price war on.

I was watching the Winter Olympics this week and saw an ad for AT&T. No surprise there.

(Not to be a cranky old man, but can I please just watch six whole minutes of the Olympics without it cutting to a commercial?)

The AT&T spot was interesting, however, because of what they’re selling: the Mobile Share Value plan, with four lines, unlimited talk and text, and plenty of data for $160.

It’s a non-contract plan.

Cell phone ads are usually about the quality of the network, or the “free” phone—anything to distract you from the fact that you’ll be paying $120 a month for two years or more.

Meanwhile, Sprint has introduced its Framily plan. I swear, that’s what it’s called.

You can share a single plan with your friends, family, or (as far as I can tell from the ads) the members of your Southern rock band.

The price is as low as $25 per line.

You don’t have to share the bill, either: any subgroup of the Framily can receive its own bill, just like when you want to annoy the waiter at a restaurant by asking for separate checks.

Verizon and T-Mobile are also getting more aggressive.

Verizon is cutting prices and adding more data to existing plans. T-Mobile will buy out your contract with a competitor (subject to some fine print, of course).

LESS MONEY, FEWER PROBLEMS

The carrier price war is great for consumers, but it doesn’t change a couple of basic facts:

  • You’re almost always better off with a prepaid month-to-month plan than a contract plan.
  • You can often save so much money by going prepaid that it makes sense to pay the early termination fee to get out of your contract. Here’s a handy calculator that shows you how soon you’ll break even and how much you’ll save.
  • Most people pay for a lot more data than they use. If you don’t have to stream Netflix on the train, you can save big by going with a smaller provider like Ting, Zact, and many others.
  • Virgin Mobile, which only sells prepaid plans, continues to offer among the cheapest individual monthly plans with generous data (2.5GB high speed, then unlimited reduced speed data after that). With 300 minutes of talk and automatic payment, they charge $30/month. But you can’t bring your own phone.

MAKING MY MOVE

My AT&T contract expired in December, and I immediately switched to AT&T’s prepaid GoPhone plan, which dropped my monthly payment from $65 to $40 for the same amount of data.

But the beauty of being off contract is that I can jump ship any time I want.

Next month, I’m going to try Consumer Cellular, which was recommended to me by my dad. I can choose a plan with less talk and more data and pay even less than I do now.

Also, Consumer Cellular’s marketing is pitched at retirees.

I’m not retired, but I am the kind of guy who complains about too many commercials during the Olympics, so I think I fall within their demographic.

Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.