Mobility optimize

The illogic of two-year cellular contracts


Cellular data is getting faster again, with the debut of HSUPA.

A year ago, EV-DO Rev. A was hot stuff, giving CDMA companies (Verizon and Sprint) the lead in North American mobile data, with nothing on the horizon that would give an advantage, or even parity, for the GSM cellular carriers (such as Cingular-AT&T and T-Mobile).

Now, GSM-family Class 6 HSPDA devices downloads reach 1,800 Kbps, reaching a rough parity with EV-DO Rev. A. That isn't good enough, so HSUPA was created, and the FCC just approved the first such device, giving roughly double what EV-DO Rev. A delivers (when AT&T builds the network to match the device).

This keeping-up-with-the Joneses, cold cellular war of one-up-man-ship is getting down right crazy, for with a new faster data system every year, upgrade penalties are a prerequisite to advance with another carrier's system. The standard two-year cellular contract really gets in the way of progress. It may be effective for the cellular companies in slowing down churn (customers moving to new cell phone companies), but why not give better service instead of locking customers in with contracts?

Will you upgrade to a world-compatible higher-speed data system, even if you face termination fees for doing so?

46 comments
Dr_Zinj
Dr_Zinj

Use of termination fees negates the power of the consumer to express dissatisfaction with a product and seek a better one. They also reduce, remove, and stifle incentive to companies to improve or innovate their service. Phone companies using termination fees to hold onto their customers (almost all of them) are actually cheating the basic premise of our free economy. Dare I suggest that termination fees should be outlawed?

jtautry
jtautry

Termination fees "cheating the basic premise of our free economy?" I thought the basic premise of our free economy was that it was, I don't know, FREE? For reasons inconsequential to the argument, the fact is most wireless companies have contracts with termination fees. There are some that don't. And there are many with options for not entering into a contract. The basic premise of our free economy holds that the market demand will dictate which type of service will be offered. NOT someone else deciding for ME that termination fees are a bad deal and since I'm too stupid to make that choice for myself we need to make them illegal.

TonytheTiger
TonytheTiger

and it costs a substantial portion of our work product to accommodate, is this lame-brained idea many have that the stupid should be protected from the consequences of their stupidity. Ironically, most of the "many" above also profess to "believe" in the theory of natural selection, yet refuse to simply "let it work"! :)

TonytheTiger
TonytheTiger

Just most of them don't have the balls to assert themselves. It's really very simple... If you don't like what's in a contract, don't sign it! And make sure they know why. If enough do it, the marketplace will change to accommodate. Get what you deserve, or deserve what you get.

Liv&DieN; LA
Liv&DieN; LA

I could not agree more. I would rather pay a little more for a phone than get stuck with a termination fee for a service that I hate. Usually the termination fees are more than the cost of the phone itself (if purchased unlocked).

JohnMcGrew
JohnMcGrew

It's completely logical for the cellular carriers. The whole point of a long contract is to keep you in tow for as long as they think they can. They'd be standardized on even longer contracts if they thought they could get away with it. In the "perfect" marketplace, there'd be no contracts at all; you could come and go as you please. If one carrier came up with a plan and service that was superior to the one you currently had, you could switch at any time. A assure you, cellular company customer service would be a whole lot better if this was the case. One big reason that we're stuck with long contracts is because Americans in general have been stuck on the idea of the "free" phone, the cost of which needs to be recoup during the contract period. Of course, the phone isn't free at all. Personally, I'd much rather pay up front for the phone and have cheaper service. But the bulk of consumers trained to "buy now, pay later" will see to it that this way will be the standard for the foreseable future.

big F
big F

Living in the U.K everyone is used to paying for the phone at a subsidized price. You can gety the phone free if your on a really high priced contract or if its a few months old. I used to work for a major U.K Cell Co and the thing that really buggs me is all the little extras they just tag on. A text message cost on avreage 10p in the U.K to send, but in reality it cost the provider less that a penny to do, thats quite a hike in money gained vs money cost. Obviously they need to make a profit but when your abroad this can cost upto 10 times that for the same service. what they seem to forget is behind all the cell site masts is just a fairly plain sever network, a text message is just a data packets worth of info. My current provider Orange whom I`ve been with for 12+ years are happy to give me almost any phone on their network for free, I got the new HYTC phone for its windows and wifi and camera all bundeled into one item. My thinking was dont need to take the laptop dont need a camera and that saves me room in my travel bag. Great in priciple but a good phone is let down by a crappy U.K network system. My provider wants me to sighn a new contract just to change my talk plan. This is a plan I have had for years and is now woefully out of date. I never had to do this before and Im not signing up for a year or more just to get a tarrif only slightly better than I have which costs me more. When it comes to getting a new phone I will just go back to getting them out of contract.

JohnMcGrew
JohnMcGrew

Because they can. Enough people are willing to pay to do it, so of course they charge for it. I almost think they'd be silly not to. My current plan has a 10-cent charge to send text messages. I've never used it and never will. It seems even more silly considering that I also have unlimited data, so I can e-mail or chat all day long for not a penny more. What I think is even more silly is people who pay $5/month to have ring tones.

JohnMcGrew
JohnMcGrew

...there will be a market for "ring tones" or similar. You'd think that it would be easy to upload your own tones, but most of the carriers have disable that capability. My Treo can play WAVs and MP3s all day long, but I can't set one up as a ring tone. Why? Because the carriers think I'm silly enough to pay another $50-$100/year to upload them.

big F
big F

I Have always wondered about those buy over the internet or buy from a magazine ring tones. Right back when you could edit a ring tone on your phone and thus personalize it. All you had to do was google some and type them in then came midi and real tone and MP3. I can see why the services were needed then as not everyone had a data cable for their phone but now adays with bluetooth and memory cards, but nowadays these services should be dissaperaring. It just goes to show that you can sell old rope for money.

jmgarvin
jmgarvin

The contract is to pay for the phone and to get "cheaper" service. Verizon has this down to a science. Place the cost of most of your phones over $150 and then watch people "buy" the latest phone with their new contract. Oh and notice that your phone never lives past 2 years anyway, so you need a new phone by the time your contract comes up. On that note, why are we STILL fighting the GSM vs CDMA wars? Why can't I just use a phone on any network?

davide
davide

I have lived in the US for 8yrs and I just can't get over the cell carriers. Why do I need a contract? Why do I have to use only the cell phones you tell me to use? I understand the economic advantages of virtually "forcing" customers to get 2year contracts but all that does for the consumer is to limit our choices and our ability to move to newer technology. I want to be able to buy an iPHONE regardless of which GSM carrier I preferr or buy a brand new NOKIA phone on my SPRINT carrier.

richard.gardner
richard.gardner

Mobile phones are for phoning people. Therefore when I can negotiate a 2 year deal at half the cost of a one year deal with a provider who allows me to phone people I go for it. Data is another thing entirely - I have yet to see a benefit of data downloads via mobile which is worth paying the extra over and above more inconvienient options (eg 2 factor authentication plus hotspots/hotels). But then I'm in Europe, and seeing as we're getting screwed on data rates when travelling in Europe I suppose that's a big part of the equation ($14 per MB when travelling abroad - ha ha!!!). As to poncy "early adopters", let them do what they like and pay for, I don't care if your phone is shiny, wake me up when you've stopped talking about it - I have yet to see a killer app for mobile tech that is worth the money, at least for our company.

wendy.lawson
wendy.lawson

I agree with you. Better service would be nicer and also ditching "plans" entirely opting for packages instead on a prepaid basis, with freedom to transfer your phone to any provider you want. That's my ideal cell world.

TNT
TNT

Before I would consider dumping my current provider I would have to be able to show that I would either (a) save more money than I would pay to opt out of the contract, or (b) make more money by having improved service. That said, I think the two-year contract system make sense. Before a company makes a major investment in upgrading their architecture they need to have a fairly acurate picture of what their future income will be. Contracts provide that picture. If people could switch vendors at any time without consequence it would create an unstable financial environment for the cell phone companies that invest in the future of the industry. The two-year contract provides the economic security those companies need to justify the expense of upgrading their networks to broader, faster coverage.

Dr Dij
Dr Dij

I'm with Verizon wireless. The LG phone I have is pretty good. Doesn't do all the cool stuff but has large letters, lighted keypad and I have the software to load phone#s from my PC. So I've kept it. My two year contract is over and I'm not going to switch to another carrier tho I could switch anytime. The only thing I might ever to is change to a pay as you go phone.

BomberMedic
BomberMedic

The two-year contract is typically based on the purchase of a new phone. If I wanted to pay full retail price for the phone, I could go without a contract and still get the exact same "plan" for data and voice that I have now at exactly the same cost. The issue, and reason I signed a contract is I didn't want to pay $699 for my phone.

ben_j_dover
ben_j_dover

In my experience this is not valid. I am completely satisfied with my instrument (phone). I was totally disenchanted with my carrier - that is now back to the company name that I originally purchased instrument and contract from. The contract ended more than a year ago. Discussing my alternatives with the current carrier I was told that if I wanted to change my plan - I had to sign a service contract. Even if I did not want to change instruments. I discussed my options with a competing GSM carrier. Same tale --- if I wanted service with them I had to sign a service contract... And really should take a new instrument - even if nothing in their offerings was as good, and certainly not better, for my purposes than the one I owned. I spent nearly a decade in the telephone industry - through the divestiture - and I still do not like being chained to a service provider of any sort. Unhappily that is the situation with nearly all utility like services. It has less to do with service to the customer and everything to do with the bottom line of the provider. If you doubt that - get yourself a seat on your state's utility regulation commission. Be well!

Inkling
Inkling

If this were true...then why did AT&T force iPhone purchasers to sign a contract when they didn't subsidize the cost of the phone in the slightest? It's a convenient little lie the cell phone companies tell people to get them locked into a contract.

Inkling
Inkling

is what I brought up: the line that contracts are a necessity due to the subsidization of the hardware, is a falsehood. I understand the companies are there to make a profit and they are perfectly free to do it in any (legal) manner they choose. As they should be. Not that it's necessarily illegal, I just don't like being lied to. Therefore, as you stated, it is my responsiblity as the consumer to simply take my business elsewhere.

JohnMcGrew
JohnMcGrew

...do a great job. I'm just saying that without them there'd be NO job. BTW: There are plenty of "no contract" plans out there. You just have to be willing to buy the phone up front.

Inkling
Inkling

While I fully understand your point... Is there not cellular service in other countries that do not require contracts or force you to use certain phones, etc? Just because I am a fan of our free market system doesn't mean I have to like the business practices of those that have done the innovating.

JohnMcGrew
JohnMcGrew

...or there'd be no wireless service, much less much of anything else.

Inkling
Inkling

I was simply making a fairly obvious point that the providers are greedy bastards. The poster above stated that the contracts are a direct result of the providers subsidizing phones. I simply pointed out that this was a bald-faced lie told by the providers to make people accept the contracts. Case in point: iPhone.

MGonzalez66
MGonzalez66

John, you are right. The same thing happend when the Motorola RAZR came out... you had to pay good money for these things. Today, you can get them free with a contract from just about any carrier... at least in my area you can.

JohnMcGrew
JohnMcGrew

...the iPhone-nauts were willing to pay nearly any price to get one, and AT&T was the service provider. Why subsidize the phone when you know you don't have to? Give it a year or two. When the mass of must-have-it-at-all-cost users are all locked in, then they'll start subsidizing it.

raisch
raisch

The current cost of cell phones is kept arbitrarily high due to the limited markets into which cell phone manufacturers can sell and their need to support multiple, competing technologies in the same device.

TheCoyoteDreams
TheCoyoteDreams

Look at the world wide GSM cellular infrastructure...the US is the only country offing a mixed bag of protocols and thus when the cell phone manufacturers design and deploy a new phone, where do you think they offer the newest, hottest technology first? It isn't ever in the US because the costs are higher being that they have to create multiple models of the same phone for all the different providers so they can't compete with each other...where elsewhere such as the UK, Japan etc. you see more advanced options and lower phone costs.

Inkling
Inkling

Actually, I agree. But only with the fact that the cell phone companies need contracts. It's the why I disagree with. They need contracts because they do not take care of their customers. They need contracts because they can't be bothered with anything other than the bottom line. Personally, I think, what they need to do is to focus on customer service and providing good cellular service. I don't remember ever having to sign a contract with my cable company (be it satellite or traditional). If they can do it, so can cellular providers.

jc2it
jc2it

I have had horrible customer disservice from some of the Cingular employess. I have also been helped considerably by some of Cingular's Employees. The biggest problem is their inconsistency. The customer service rep should be there to help the customer be a good customer in the future. It takes a good salesman to get customers, but it takes great customer service to retain customers. http://headrush.typepad.com/creating_passionate_users/2007/02/too_many_compan.html

TNT
TNT

The cable companies have a fixed technology infrastructure. When a cell companie "upgrades" its service it means switching to a new technology and that requires new cell towers to be built. The old AT&T network has largely been dismantled or sold off to make way for GSM service. This was a costly project and the cable companies have no equivelent technology costs. Furthermore, cable installation fees pay to bring cable TV to new markets, on-demand fees help pay to bring you new movies or sporting events, etc. Also there is a support industry - advertising and content provided by film and television production studios. By contrast, any new service a cell company wants to offer must be funded by them, not advertisors or other industries. The service contract is their only source of income.

david.schofield
david.schofield

If all the carriers shared, we would still be using bag phones. The next best thing to shared infrastructure is roaming. Gives some carriers a competitive advantage to make more revenue to invest in the next generation.

jk2001
jk2001

They keep listening to the big telco lobbyists, and then mouth off about a "free market". The telcos act like gatekeepers to physical infrastructure, rather than a consumer-focused service, because that's a more stable business. It's generally less risky to be the "landlord" than the "maid." Capital costs to enter the infrastructure business are high, so the companies are subject to less competition. Lobbying politicians to protect this structure is part of their cost of doing business. We can hope and wish that this will change - it'll happen around the same time that landlords start marching in the streets for "maids' rights."

raisch
raisch

Both transmission technologies can easily coexist under a single shared infrastructure, where the costs of specific transmission technologies would be borne by whichever partner receives benefit from them. But in reality, the cost of transmission equipment is really a very minor part of any carrier's infrastructure. The real cost savings come from the far more expensive, "non-fixed" costs such as construction and maintenance of towers, acquisition and management of right-of-way contracts, owned real-estate, ongoing equipment maintenance, technical emergency response, etc. And as far as supporting competing technologies, I think a better question to ask is: How are we (consumers) and the industry served by multiple competing technologies? The underlying transmission technologies are immaterial to the services provided, as evidenced by the ongoing surge in consumer interest for VOIP over wireless. In most cases, GSM and CMDA support the same services: voice, video, messaging, streaming content, Internet access, etc., but in different, non-interoperable ways. To the consumer, the underlying transmission frequencies, modulation and protocols are completely interchangeable and unimportant since consumers do not purchase GSM or CMDA, they purchase telecommunication services. Supporting both GSM and CDMA only drives up the cost of handsets (as described previously), limits consumer choice, and quashes competition by creating "walled gardens" forcing consumers to remain with companies unresponsive to their needs. While it might make some sense in the short-term to bundle both technologies in an industry-wide shared physical infrastructure, the goal would be to migrate to the most useful transmission technology to deliver the best, most reliable, and widest collection of services to all consumers which I believe is generally known as "customer service."

TNT
TNT

I agree with your assertion that huge cost savings would result if CellCo's (as opposed to TelCo's, lol) would join forces and share towers. The problem is it is technology-driven industry. AT&T used to use TDMA technology, now they use GSM; Sprint and Verizon use CDMA. Think of T/CDMA as AM radio and GSM as FM. Mutually exclusive technologies each with their own limitations and benefits. Which technology do you want to adopt? You can't have both under your system. Besides, I'd rather see the CellCo's compete to bring new services to market (like faster wireless Internet) than to compete solely on customer service.

raisch
raisch

What I find the most amusing about U.S. cell providers is how they ignore the massive cost-savings they could enjoy using a single shared physical infrastructure. Partnering in this way would spread the physical and maintenance costs across the entire industry and guarantee the same technical QOS for all subscribers. When new improved technology became available, all partners would participate in its deployment and maintenance costs based on the size of their subscriber population. But this "open network" would require these so-called "service" companies to compete on customer service and none of them can. Here, I think, is the central fallacy of these companies: they act more like gatekeepers to physical infrastructure than providers of a consumer-focused service (as evidenced by their reliance on extended contracts, lock-ins, and non-interoperability to capture and retain customers.) All of which seems to call for a federally mandated physical cellular infrastructure and based on the increasing importance of cellular communications as "critical infrastructure" (ref. the tragedies of 9/11 and Katrina), we might yet see it happen.

learush
learush

Will you upgrade to a world-compatible higher-speed data system, even if you face termination fees for doing so?

Larry the Security Guy
Larry the Security Guy

If simply looking at out-of-pocket expense, it would only be worth paying a termination fee was less than paying for two plans until the end of the unwanted contract. There are other costs.

armstrongb
armstrongb

I look forward to ditching my Blackberry once my 2 year deal with Cingular is up in 2/08. The email and web features are underwhelming. I like having a full keyboard yet I use the device for email and web much less now than when I first got the device. The next phone I buy will be a phone. I will buy the basic phone and go month to month with whomever I choose as a provider. I don't need or want anything but a phone. I can use my laptop for web and email and actually enjoy the device and not deal with a small device screen and poor performance of the Cingular network.

jcooper
jcooper

A couple of years ago I tried to start new service with a phone I owned and was told that they wouldn't start a new service without a contract. They would let me use my phone, but they refused to activate service unless I signed the contract. This was Cingular (the only company in the area with the appropriate network for my phone) and it was probably 2002 - have they done away with that stupidity yet?

Gatekeeper777
Gatekeeper777

All major carriers offer a month-to-month agreement. It is call their PrePay Plan. Cingular/AT&T it's called goPhone, Verizon it's INpulse and EasyPay, and T-Mobile it's ToGo. The carriers have not advertised these PrePay plans until recently after the Freedom Wireless lawsuit was settled because everyone used the same PrePay billing technology based on Freedom's patented technology. The major carriers have settled the lawsuit by paying Freedom Wireless billions of dollars for using their technology and getting their approval for continued use. The PrePay plans have a more expensive minute charge because a cut has to go to Freedom Wireless every month.

tsnead
tsnead

Once you have a carrier, most people stick with them for awhile. If you are just looking for the newest "best" deal then maybe you want no contract or a shorter one, but contracts always offer you better rates over month-to-month or pre-paid. Get a new phone, get a new contract and save money. If you don't you are going to have to pay full price for the phone (believe it or not they are not free to the carrier) and probably pay higher rates for your minutes and data usage.

Gatekeeper777
Gatekeeper777

Right or Wrong - The primary reason for two year service contracts is because the cell phone company sells most of the phones at a loss. The 'FREE' phone is not free to the company. In fact, they only make a small profit on the sale of the phone itself with the higher end phones. (Can we say iphone) They eat the cost of the lower end phones to make the money back with the long term service plans. Most every major carrier does offer monthly plans but you pay full price for the phone.

MGP2
MGP2

When my 2-year contract with Verizon Wireless was about to expire last August, I sat down and looked at my usage and I found it didn't justify a contract. I switched to Cingular's(now AT&T) pay-as-you-go, purchased a $100 card. And you know what? I still have time left on my card. The phone itself cost $25. So, between the phone and the card, it's cost me about $10 per month. I think the emphasis is placed properly when pronouncing the word CONtract.

jk2001
jk2001

Prepaid service is around 10 to 12 cents per minute, if you get the 2-for-1 plans and buy in bulk. On one provider, text messages are 1/2 a minute, which is around 1/3 the cost of messaging on most cheap voice contracts. For business purposes, prepaid costs are similar to low-minutes contract, because most of your talking is done during the prime-time, not the off-hours.

paulmah
paulmah

Where I live in Singapore, mobile contracts are a dime a dozen for voice access for almost as far back as mobile phones have been around. (Which is pretty long!) Paradoxically, as the Telcos started rolling out HSDPA data services from the beginning of this year, some of the Telcos are offering these (pure) data services without contracts in a bid to be even more competitive. It is pretty amazing, but from last month onwards, we are able to get unlimited 7.2mbps (1.9 mbps upstream) HSDPA data connectivity for about US$40. What's more, you get it at half price if you are an existing subscriber of that Telco's fixed line broadband. Kind of explain for my posting at all kinds of odd hours I suppose! :) Link: http://www.starhub.com/portal/site/Mobile/menuitem.ef2fba19efb706d530710a608324a5a0/?vgnextoid=52527f6622504110VgnVCM100000464114acRCRD