Fraud of the Month

Phones and Plans

The "Hook"

A “free” phone. There is a virtual war going on between prepaid cell phone plans offered by small companies and

contract cell phone plans offered by the major carriers. Like normal warfare, no single battle will determine the ultimate

winner. The war is ongoing, and the victor will be determined by the educated and informed consumer. The enticement

of a free or heavily discounted phone usually attracts the uninformed and sucks the consumer into a costly two year

contract which bears a heavy penalty to terminate. Many young adults never consider the consequences of monthly

contractual debt that often exceeds $100 per month, with additional penalties for overuse or late charges.

The Lesson

If Nothing is free, there is always a cost to someone. The “free” phones get paid for by the hidden fees and the amortization of a long term contract. To decide which choice is the better choice between a pre-paid minutes plan or a two year contract, the user will have to weigh the following: (1) whether he or she wants the freedom from cell phone

contracts so he or she can change carriers to get better service; (2) the true cost of the phone; (3) the cost different carrier’s charge per minute; (4) which carrier provides the best and most reliable coverage in his or her area of use.

After all these variables are examined, only then can one determine the advantages and disadvantages of different plans and phones. Both prepaid plans and contract plans are available just about everywhere.

For a lot of people the main concern is the burden of having a 2-year contract. Most people get lured into a 2-year contract by all the excitement of getting a brand new phone with all the bells and whistles and with all the free talk time and text messaging. They overlook that little dotted line where they contractually agreed to pay a certain amount of money every month for the next 24 months. Cell phone carriers are very good at convincing you to make that agreement with tactics such as giving you a brand new smartphone for “free”.

What the uninformed consumer doesn’t realize is that the phone isn’t really free, you simply buy the phone over time.

Cell phone companies figure that by giving you a “free” phone with a 2-year contract, then after 24 months they will have collected enough in fees to have paid off the cost of the cell phone plus some. And their real goal is to hook a committed customer for a long time in the future, thus increasing their future profits. Furthermore if the customer

chooses an early termination on their contract, the customer will have to pay an exorbitant discontinuation fee, which will pay for the cell phone anyway. So either way when you sign a contract the cell phone company has a wining situation. So consider these facts when picking out a cell phone plan.

Often it is better to bite the bullet and buy a cell phone for full price, rather than choose a two-year plan, particularly when you have an uncertain financial future (like no job after college). By paying for the phone upfront, you have the freedom to stop and start new coverage at any time, or change services if you choose without having to worry about astronomical discontinuation penalties.

Also consider that prepaid cell phone companies use the same towers as major carriers.

They pay major carriers such as Verizon and AT&T to use their towers and bandwidth. Also consider that the major carriers such as Sprint also offer their own prepaid plans. For instance, Sprint owns Boost mobile. This benefits them by having their hand in the prepaid market as well as the contract market. Both Boost and Sprint run off the same

network of towers. If you compare the price for unlimited everything time from Boost mobile to Sprint’s unlimited minutes plan, there is a significant difference, although with Boost you will have to pay full price for your smartphone up front. Doing the math on a recent comparison, you would save an average of $30.00 a month on Boost’s prepaid plan. And if you figure that over a 24-month contract you would have saved $720.00 in two years by not signing a contract. That’s a lot of savings for use of essentially the same network.

At the time of signing a 24-month contract, this obligation might not sound like a big deal. One might think that they will have to pay a monthly cell phone charge anyway, but what people don’t often realize is that two years is a long time, especially when you are young and mobile. Students often relocate to a different region after graduation, or they might decide to travel, get married and combine plans, or maybe get a new job where their employer provides a cell phone plan for them. If you have a contract you then are obligated to continue to pay your monthly statement or pay an outrageous early termination fee, often times upward of $300. Bottom line: often a prepaid phone plan is the way to go.