The phone subsidy is paid off, so why is my monthly bill still high? You're still hoodwinked!
CNET's Marguerite Reardon explains why carriers continue to charge the same monthly service fee even after your phone subsidy is paid.
I've got news for you, Ask Maggie readers. The cell phone toting public in the U.S. has been hoodwinked into continuing to pay high service fees on devices even after we have paid for the devices in full.
Wireless operators tell us their expensive early termination fees are to recoup the subsidy paid for our phones if we leave the service before our contracts expire. That may be so. But why doesn't the price of our monthly services get reduced once that subsidy is paid? This is the question I answer in this edition of Ask Maggie. But before you get too angry, I have good news. There is one service provider out there who sees the justice in slashing service fees once devices are paid for. And with any luck, others may follow in the future.
I also offer some advice to a smartphone shopper on a budget, who needs to know which unlocked smartphone to buy. I also explain the difference between T-Mobile's new prepaid brand GoSmart and its traditional prepaid services.
Justice for subscribers who've paid off their phones
Dear Maggie, I have been searching and have not been able to find the answer for this question.
I have an older iPhone 3GS that I bought coming up on four years now. I'm sure the subsidy that AT&T covered has been paid off by now. I really have no need to upgrade my phone. But I would like to renegotiate a lower rate with AT&T. Do I have any options and what could I expect for a reduction in my monthly service, if any?
Dear Todd, Unfortunately, AT&T doesn't adjust the price of your monthly service based on whether or not your phone is fully paid for or not. This means that the price of your service when you buy a new phone with a subsidy is the same at the beginning of your new contract as it is 24 months later when the contract expires and you have finished paying off the phone. Carriers force customers to pay a hefty early termination fee to cover the cost of the device if they leave the service early.
Of course, it would be better for consumers if AT&T and other carriers had a policy so that when you finished paying off the subsidy your monthly service cost would be reduced, but most do not.
Why? The simple answer is because AT&T and the other carriers who have set up their plans in the same fashion want to wring as much revenue out of you as possible. And the truth is you are an ideal customer for them right now. You paid off of your phone subsidy many moons ago and now you're still paying for the service.
You could call an AT&T representative and see if they could make a deal for you. After all, most things in life are negotiable. And it might be worth a try. But I wouldn't hold my breath, since in general there is no pricing package that would offer you a discounted price on your monthly service if your phone is already paid for in full.
But you bring up a very interesting idea in this question. And there is a chance that in the future pricing plans could change across the industry.
Here's why: Last year, T-Mobile launched its new Value Plans, which essentially do away with phone subsidies. These new plans require customers to pay the full cost of their devices. But to help with the potential sticker shock of these devices, which can cost $600 or more, T-Mobile is allowing customers to pay for their devices in installments over 20 months.
In many ways, it looks just like a phone subsidy. A subscriber gets a phone for a $99 down-payment and then pays for the device over the several months. But what is different in this plan is that once the device is paid off, the monthly bill that the consumer must pay is reduced. So if T-Mobile adds an extra $20 a month to the cost of the monthly service to pay for the device, once the device is paid off in 20 months, the subscriber no longer has to keep paying the additional $20 fee.
The way the plan works today, T-Mobile charges $69.99 for its unlimited everything service plan, which includes unlimited voice, text messaging, and data. If you buy your phone outright, then that is the monthly service price you pay. If you finance your device, add another $20 a month to the monthly cost. At the end of your contract period, the monthly service will drop back to $69.99.
The pricing is comparable in cost to T-Mobile's "Classic Plan," which is similar to every other wireless operator out there. The unlimited everything Classic Plan is $89.99 a month. But once the contract ends, the price doesn't drop by $20 a month.
In December, T-Mobile CEO John Legere said the company plans to eliminate all service offerings with a subsidy, and instead it will move all its postpaid customers to Value plans.
What is still a bit unclear about this move is what it means for contracts. There are rumors that at the end of March, T-Mobile will also announce that it will no longer tie customers to contracts. This may be the case for customers who bring their own devices to T-Mobile and those who pay for their devices upfront. But I find it hard to believe that T-Mobile will eliminate contracts and early termination fees if a customer is on an installment plan to buy the phone.
That said, contract or no contract, what is actually more important here is that T-Mobile is finally offering consumers an incentive to buy their devices at full price. As I described with AT&T and other carriers, such as Sprint and Verizon Wireless, there is very little if any incentive to buy a device at full price. Verizon customers with grandfathered unlimited data plans could keep those data plans if they buy a phone at full price. And if you're an AT&T customer, you could buy an unlocked phone, which means you could take it to another GSM carrier. And if you buy a device full price, you may be able to forgo a contract. But the reality is that you still need to have a service. And if you plan on using one of these carriers, at least two years, there's really no reason not to get a subsidized device.
But T-Mobile's plan is changing the dynamic. Perhaps we will see other carriers follow. None of the other carriers like subsidizing phones. It's a cost that hurts their bottom line when existing customers renew and upgrade devices on a regular basis. But these carriers have already started to tighten their upgrade policies to discourage so many upgrades. They each charge customers an upgrade fee when subscribers do decide to get a new phone with a subsidy.
The big question is whether AT&T, Verizon, and Sprint dislike subsidies as much as they like giving up the extra revenue they get from customers like you who hold onto their devices much longer than their contract period. We'll have to wait and see how popular T-Mobile's policies are.
I hope this answered your question and offered further explanation. And good luck dealing with AT&T! I hope you get your discount anyway.
Looking for a smartphone, prepaid bargain on T-Mobile
Dear Maggie, I am planning to get a new smartphone without a contract. I am confused if I should wait for the newer phones like the Samsung Galaxy S4 coming out soon, or just buy something like the non-contract Google Nexus 4. I really don't want to spend that much on a new phone, so that's why the Nexus 4 is appealing.
I am also on a T-Mobile Flex-Pay prepaid plan, but I've recently read about the new GoSmart plans from T-Mobile and they sound pretty good. Can you tell me what is the difference between the GoSmart $45 plan and the other prepaid plans that T-Mobile offers?
Dear Mustafa, If you are on a budget and you want to get a new unlocked smartphone without a contract then I'd say that the Samsung Galaxy S4 may be a little too expensive for you. The device hasn't been announced yet, so I can't say for certain what the price of the unlocked version will be out of contract. But the unlocked international version of the 16GB Samsung Galaxy S3 is currently selling on Amazon for about $530 . This is supposedly down from a list price of $899.
The Nexus 4
(Credit: Josh Long/CNET)
You can get the 16GB version of the Google Nexus 4 from the Google Play store for $349. The 8GB version is even less. It sells for $299. This is really a great deal if what you want is an unlocked smartphone that you can take to just about any GSM carrier.
Now, let's see if I can answer your second question. The GoSmart prepaid brand launched last month. And the plans are really designed for budget-conscious customers who may use a lot of voice and text messaging, but are willing to live without the fastest data service that T-Mobile offers.
GoSmart Mobile is a new brand owned by T-Mobile that offers plans starting at $30 a month, which includes unlimited talk and text messaging. For $5 more a month, you can get unlimited Internet access. But the speed of the service is limited to T-Mobile's slower networks that operate on 2G GPRS and EDGE technology.
If you get the $45-a-month service, you can upgrade to the 3G HSPA network with 5GB of data. After you hit the limit of 5GB, the service slows to the 2G speeds. But keep in mind that this service will not give you access to T-Mobile's 4G service, which uses HSPA+ and in the future will offer LTE. So even if you pay a bit more for the $45 plan, you still won't be getting access to T-Mobile's fastest service.
T-Mobile also offers its regular prepaid services, which access its fastest networks. There is a $50 prepaid plan that gives you unlimited voice and text messaging, but you only get 100MG of data at the full 4G speed. After that, the service is knocked down to 3G speeds. For $70 a month, you can get unlimited voice, text messaging, and data at 4G speeds. But that is $25 more a month than the GoSmart plan. The $70 T-Mobile prepaid plan gives you more data at faster speeds, but you'll have to decide if that's in your budget or not.
I hope this explained things for you. And good luck!