Let My Smartphone Go!

Good and bad: Separating mobile devices from exclusive contracts with cellular providers.

There is a wide assortment of smartphones to choose from these days. The majority of popular mobile phones run on one of five operating systems: Symbian, Blackberry, iOS, Windows Mobile (now Windows Phone 7) and Android. Combined with the many different phone manufacturers, there is a huge variety of phones to choose from--arguably there is enough to satisfy pretty much everyone.

When it comes to mobile service providers, at least in the US, there are a considerable number of choices: AT&T, T-Mobile, Verizon and Sprint are the top four in the US and easily recognizable. If you sign up with a provider, you are usually required to agree to a term contract--typically for 2 years. There is also the option of going with a non-contract prepaid plan, which the major service providers all sell (Sprint is sold under the Virgin Mobile brand in the US).

Most cellphones can be purchased unlocked and used on any cellular provider. However, there are some phones that can only be purchased through a specific provider. The Apple iPhone is tied to AT&T, The Android G1 and upcoming G2 are tied to T-Mobile, the Palm Pre was tied to Sprint. Some phones are restricted by service type; GSM phones won't work on Verizon or Sprint, both of which use CDMA.

Buying an unlocked cellphone can be expensive, especially if you want a high-end smartphone with the most advanced capabilities. If you want a HTC Droid Incredible without a Verizon plan it'll set you back around $500.00. The new BlackBerry Torch 9800 will cost around $550.00 without a contract. The iPhone cannot even be purchased without a 2-year contract with AT&T.

Many cellular providers in the US subsidize the cost of mobile phones if you sign up for a term contract with them. That BlackBerry 9800 is only $99.00 if you sign up for a 2-year contract with AT&T. The Droid Incredible can be purchased from Amazon for only $80.00 if you sign up for two years with Verizon. Apple's iPhone is automatically subsidized by AT&T because of the contract requirement. If your needs aren't that high, you can usually get a free phone from your provider for signing a contract with them.

Subsidizing the cost of the phone by tying the customer to the contract is only good if you plan on staying with that mobile service provider. If you cancel your contract early, you will likely find yourself paying an exorbitant early termination fee--even if you got one of the inexpensive cheap phones. Complaining about the abuses of cellular companies is a subject for an article at a later time.

The problem with signing up for a 2 or 3 year contract just to save a couple of hundred bucks on a handset may actually not be worth it. For instance, let's say that your average monthly bill is $85. This would cover you for several hundred minutes of anytime calls, unlimited internet access and a thousand text messages (on average). That would come to over $2000.00 for a two-year contract. Let's say the mobile provider had a special and you got your handset for "free" with the contract.

Now compare buying the same handset for $500.00 and signing up with the Virgin Mobile prepaid plan. Their completely unlimited plan, for text, data, email, web and 1200 minutes of phone calls is $40.00 a month. With the cost of the phone, that's $1460 for two years. You would save over $500, and you could use that to upgrade to a new handset if you wanted. This is just an example, but it does show that paying full price for an unlocked handset and a monthly prepaid mobile plan is much cheaper.

Not suprisingly, this is actually the norm in Europe. Most people buy their mobile service and handsets separately, rather than tying themselves into long-term contracts. Maybe we should re-examine our own cellular buying practices here in the US.

This is just my opinion: If we completely separated handsets from contracts, and opted out of contracts altogether, we could pressure both the handset manufacturers and the service providers into bringing prices down so that more people could afford better devices and service.