Verizon will drop phone contracts, end discounted phones

http://news.yahoo.com/verizon-drop-phone-contracts-end-discounted-phones-201530971--finance.html

by jrs235 • 11 years ago

30 44 11 years ago

news.yahoo.com

asdrty• 11 years ago

It doesn't sound simpler or cheaper to me. If you include the price of the phone, it can easily end up being more expensive. And they still have a different cost for people bringing their own phone...

butterfi• 11 years ago

I'll be curious to see if this has any impact on phone pricing. Without the subsidy, I doubt as many people will upgrade as often, which will slow phone sales.

atonse• 11 years ago

It shouldn't, since they're introducing installment plans instead. So your monthly bill won't really go up.

pkaye• 11 years ago

It will just become installment payments.

IkmoIkmo3• 11 years ago

I like it, it means the purchase of your phone and your contract are separate. This makes total sense from a consumer perspective, the fact they've been on the same contract for so long is absurd.

Imagine buying a laptop with an internet subscription for two years. If you happen to go on vacation or move countries, or sell your laptop to buy a new one... well tough luck you're still paying for that, usually non-transferable, contract for service you're no longer using. You can apply this to anything, like buying a television with a two year cable contract, it's just silly.

That model worked years ago. Today we're seeing customers on the move much more, and I'm personally seeing more turnover of equipment, too.

It doesn't really have anything to do with 'discounts'. Vendors weren't running a charity and they're not ending any discount, they're simply structuring everything a little differently, I think that makes sense.

Part of this trend is probably both consumer-driven (I wouldn't be surprise if this was a response to a growing number of consumers requesting and complaining about ending long-term contracts for sensible reasons like switching phones, country or even simply carrier), as well as driven by changes in law.

For example here in the Netherlands, a discounted phone is now seen as a loan. And loans have certain legal requirements. For example when you advertise or offer a loan, you must very visible (like a cancer warning on cigs) say 'Attention! Borrowing money costs money', which links you to a government initiative to inform about the risks of loans. Another requirement is that the vendor is transparent and clear about the costs of the loan, and it's in a standardised format that is very hard to structure in a way that it looks really good but really screws with you (like US payday loans). The loan must also be checked against the de facto debt-service coverage ratio of the individual if it's high enough, and then gets registered. All these things happened recently in response to the learnings from the consequences of predatory loans in the financial crisis.

And it is a loan, if you get a free phone but pay a higher monthly fee, it's not much different from buying a house on a mortgage and paying a monthly fee, only it's smaller in scale and timeframe. Because of this, the phone and the data plan are advertised separately, even if they're sold as a bundle. You can still get a phone with $0 upfront, but it's advertised as a loan transparently and separately from the dataplan. I wouldn't be surprised if stuff like this becomes a best practice standard worldwide pretty soon, and so perhaps carriers are making changes ahead of time.

ild2• 11 years ago

Americans have very different attitudes to loans, compared to Europeans: you do not borrow - you are missing out what life offers to you.

wil4212• 11 years ago

I don't think its Americans that would rather get loans on things. For cellphones it's the only option available with the big 2 carriers (the others used to do it too).

Last time I was in the store the reps had to explain about the installment plans over and over. Most people were outraged and didn't believe the employee telling them their phones had been subsidized. They couldn't fathom the actual cost was $649+. We also don't have much prepaid plans unlike what people have told me they have in other countless.

adventured• 11 years ago

Given the very high levels of household debt in most of developed Europe, I have to disagree with your premise.

See: Netherlands, Denmark, Sweden, Ireland, Portugal, Finland, UK, Switzerland, Norway, Spain -- all of which have either high or very high household debt to income ratios due to "loans."

zw1234562• 11 years ago

I think this should put price pressure on the phone manufacturers. With the price tag of the phone out in the open, customers will now realize the actual cost of the phones and start selecting lower price models. Most people do not realize what the retail price of a phone is since it is so heavily subsidized by the carriers.

fpgaminer2• 11 years ago

It also means people won't wastefully buy new phones every two years. Under the contract system, customers were given the chance to upgrade their phones every two years for free or whatever small additional fee particular phone models would cost (e.g. iPhone would be $100, but a cheap Nokia would be free). It was a waste not to upgrade, so oftentimes perfectly good phones would get replaced just because you had to upgrade. It also meant renewing the contract, allowing carriers to force customers into new terms every two years.

What an abusive system. For all of T-Mobile's faults, I'm glad I switched to their no contract plan years ago.

Lx1oG-AWb6h_ZG0• 11 years ago

The trouble is, most flagship phones are made these days under the assumption of a two year use. I bought a HTC One M7 two years back because it was the best Android phone available then, but it's now barely usable: I have to charge it twice a day, the camera has this ridiculous purple tint, the latest Android is bog slow on it, and its out of warranty.

I've been using the same PC for five years with no problems, so I bought my phone at full price from HTC thinking I'd use it for a similar lifetime, but it's really a PITA to use now.

zw1234562• 11 years ago

This is a very interesting dynamic because it is absolutely true that the phones are designed to last about 2 years. But the carriers also depend on this because in order for them to introduce new features and functions or to get new spectrum opened up for capacity, the count on the entire user base of phone essentially turning over every few years. If that pace slows down, it will be more difficult and take longer for them to turn up new spectrum.

fredgrott• 11 years ago

nope, most of the price is the patent costs for the telephony transport used..for example the LTE chip is more expensive than the 3g due to patent costs alone..part of that cost is also the fact that firms like Qualcom can only produce so many chips

caseysoftware• 11 years ago

While there is much celebration of the end of contracts, a contract has benefits from each side. While you may not be happy with the amount you have to pay, it can't change for the duration.

Now it appears that everyone will be month to month by default which means the bill can (and will!) change at any time.

joesmo4• 11 years ago

A decent carrier like T-Mobile who has had no contracts now for years will not do this, except to offer lower priced plans, which they have.

AdmiralAsshat• 11 years ago

This should ostensibly be a good thing. I pay $300-500 upfront, and then my bill goes down from $90/mth to something more reasonable like $60/70.

In practice, however, what I imagine will happen will be that they'll tack on all sorts of fine-print fees and other obnoxious gotchas such that the end bill will probably be about the same...plus the fact that I just paid $500 for the damn phone.

Look to the airline industries. Did they stop their absurd baggage checking fees when the price of gas went down?

jessriedel2• 11 years ago

Look to the airline industries. Did they stop their absurd baggage checking fees when the price of gas went down?

Well, baggage isn't costless to the airlines. In theory thing should be more efficient if the consumer saw approximately the correct price. I just wish Kayak would start showing prices assuming 1 checked back by default, and give you the option to specify how many you expect to bring. That would remove a lot of the incentive for those gotcha charges.

pavel_lishin• 11 years ago

How often do people travel with checked bags? Even for a two-week trip, I typically bring an overhead carry-on and a backpack.

mattwad• 11 years ago

All you have to do is bring your bag to the gate and they always check it for free. It wastes more time for everyone but they still get to charge the poor honest people at the ticket counter

seanp2k22• 11 years ago

This works if you have an additional carry-on-sized bag. I probably wouldn't try it with a huge suitcase, surfboard, or anything else "special" or oversized.

omouse• 11 years ago

It should actually go further down than that.

aikah• 11 years ago

In Europe less and less people buy subsidized phones.They want their subscription as cheap as possible and without any string attached. It might not be a good deal if you want an Iphone though,so they should keep that option for Apple customers. But when you can get an android phone for 50€ there is very little reason get a 2/3 years contract.

However :

Under the new plans, customers will pay $50 for 1 gigabyte (a price increase for both groups) and $65 for 3 gigabytes (a price cut). The 2 gigabyte plan is being discontinued, so customers will have to choose more or less.

It is fn. expensive when compared to EU prices. Why is that?

joesmo4• 11 years ago

"It is fn. expensive when compared to EU prices. Why is that?"

In the US, there are only 4 major cell phone carriers and their plans are so similar in price, it might as well be a monopoly.

rhino369• 11 years ago

Does Europe have 4 major competitors in each country? I seriously doubt it. It's probably the opposite. They have three or less true operators and they each have more spectrum at a lower cost.

The cheapest option would be a single carrier regulated by government. But they might not upgrade as fast. So we might have super cheap 2g instead of expensive LTE A.

MrRadar• 11 years ago

It is fn. expensive when compared to EU prices. Why is that?

US carriers have to cover a land area 1/3rd greater than the total land area of Europe[0] and they have just barely half the population to spread the costs over[1]. Also there are no inter-state roaming fees in the US, from what I understand most European carriers have roaming fees outside of your home country. That doesn't explain the entire price gap, but even in a perfect world US phone plans would still be more expensive than European plans just on that basis alone.

Additionally, Verizon's main selling point is they have the largest coverage area so their plans are always the most expensive. T-Mobile, Sprint and many MVNOs offer much cheaper service (with less coverage). For example you can get 100 minutes/unlimited texts/5 GB of 4G LTE data for $30/month on T-Mobile prepaid, 300 minutes/unlimited texts/2.5 GB data for $35/month on Virgin Mobile (uses the Sprint network), or unlimited minutes/texts/2.5 GB 4G LTE data (throttled to 8 Mbps) for $35/month (with autopay discount) on Cricket (uses the AT&T network).

[0] http://www.wolframalpha.com/input/?i=%28land+area+of+usa+-+l... (excluding Alaska since it's huge and almost nobody lives there)

[1] http://www.wolframalpha.com/input/?i=population+of+usa+%2F+p...

jlg23• 11 years ago

"It is fn. expensive when compared to EU prices. Why is that?"

EU prices vary a lot and some parts of Europe are not much cheaper than the US.

The Digital Fuel Monitor has a nice comparison: http://dfmonitor.eu/downloads/DFMonitor_1H-2015_Europe_mobil...

briHass• 11 years ago

Verizon still plays games with phones purchased through them, however. Their new plan, "Edge", is only discounted to a reasonable rate if you also purchase a phone from them through monthly installments. The cheapest phone they offer that qualifies for this discount ($15/m) is $200.

So, no bringing your own device, unless you like paying more for the same service.

ck2• 11 years ago

Except you can't bring your own non-verizon device, even if it is LTE, they won't allow it on their network.

adrr• 11 years ago

I thought they couldn't discriminate on devices. When government auctioned off the old TV frequencies, thats was part of the agreement. LTE is using these bands.

ilaksh• 11 years ago

The contracts were a scam. Seems great at first, but eventually you realize you already paid for your phone and are just getting fleeced. So you try to leave one month before the contract ends for a service that is half the cost, and they nail you for $200. Only your credit is already useless, so they don't get the $200 and instead just get a lot of angry former customers.

InclinedPlane• 11 years ago

Ugh, I hate this article because it just buys into the industry PR terminology. Buying a "subsidized" phone doesn't mean the big phone company is cutting you a deal, being nice to you, and putting money in your pocket. No, it's providing financing for a phone purchase at an effective APR of around 100%. It's ridiculously lucrative for them.

IkmoIkmo3• 11 years ago

Exactly it's just a loan, buying a phone on credit and paying it off monthly. It's like saying buying a home with a mortgage is buying a subsidised home, just ridiculous.

Verizon will drop phone contracts, end discounted phones

Related Stories