Two-year customer contracts were once the standard for U.S. wireless carriers. How times have changed.
Wireless customers signed the long-term contracts in exchange for a discounted price on a phone. But that model is going away. Sprint just announced it is phasing out two-year contracts by the end of the year, in favor of leasing smartphones to customers, The Wall Street Journal reports.
T-Mobile ditched contracts more than two years ago, while Verizon adopted a no-contract stance earlier this month. AT&T is now the sole U.S. wireless carrier that still offers two-year contracts.
“The new model does away with early termination fees for canceling service but requires consumers to pay any remaining balance for the devices if they change carriers before it is paid off,” U.S. News & World Report explains.
Sprint also just unveiled its iPhone Forever plan, which allows customers to pay $22 per month to lease an iPhone, and allows them to upgrade to the newest version of the iPhone when it becomes available. This is an improvement from Sprint’s current iPhone leasing offer, where customers are eligible to upgrade to a new iPhone every two years.
“This change by Sprint effectively means that subsidized devices are finished at the top-tier carriers,” Brian Haven, a senior research analyst on mobile phones at the International Data Corporation market research group, told U.S. News. “There is a chance that smaller carriers will continue to offer, but I think that fact that the major carriers are discontinuing is telling of overall market demand.”
According to CNN Money, the demise of long-term wireless contracts could lead to savings for consumers as carriers try to beat each other’s deals.
“Sprint has gone on a price-cutting tear recently, severely undercutting the competition by offering to cut Verizon and AT&T customers’ bills in half if they switch, and offering the cheapest iPhone plan among the biggest four cellphone carriers,” CNN Money said.
But according to Forbes contributor Heather Newman, no-contract plans are typically best for loyal customers who don’t upgrade their phone often.
Newman warned wireless customers to read the fine print before opting to participate in a phone lease plan, because they could end up paying more for their monthly service than they did with a long-term contract.
The change effectively makes contract termination fees a sliding scale, instead of a firm $300-plus commitment. If you back out early, you’ll pay more. If you wait until the end, you’ll pay less, or nothing at all. The upshot is that while you’re not signing a contract, you’re still financially tied to the service, which is all the teeth a traditional carrier contract ever had.
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