Is Your Cell Phone Contract Becoming Obsolete?

June 14, 2012

Back in January, I wrote a post about ways to save money on your phone bill. One of the things I mentioned was using a much cheaper prepaid cell phone plan instead of a more expensive contract with one of the big 4 carriers: Verizon, AT&T, Sprint, and T-Mobile. A lot of the prepaid plans actually use the same network as one of the big 4 so you’re essentially getting the same coverage for a lower price and with the flexibility of not being tied into a contract.

For example, my cell phone provider, Virgin Mobile, is owned by Sprint and uses the Sprint network. But while Sprint’s least expensive smart phone plan is $80 a month, Virgin Mobile’s lowest cost plan is only $30 a month. It comes with fewer minutes but for those who like to use their phone to do a lot of talking, you can get an unlimited plan for $50 and still be paying less than Sprint’s cheapest plan.

AT&T and Verizon can be even pricier. Both start at $70 a month but they have data caps that you will have to pay extra for going over. Oh, and you’ll have to pay another $20 per month if you do a lot of texting too.

So what’s the catch to going prepaid? In my previous post, I pointed out that the prepaid companies have a limited number of phones that generally aren’t as good as what you can find from the big 4 (although I’m pretty happy with my little Optimus V) but that gap is closing dramatically. Just 2 weeks ago, Virgin Mobile released the HTC Evo V 4G, which has a dual-core 1.2 GHz processor, a 4.3” qHD screen, the latest version of Android, a 1.3-megapixel front camera and dual 5-megapizel rear cameras, 4G speeds, and 3D and mobile hotspot capabilities. That’s Geek speak to say that it’s probably better than whatever you have now.

Now, I know there are some diehard iPhone fans that will dispute me on that point. I could try arguing that 4G speeds and Google navigation beat being able to flirt with my phone but it turns out that I don’t have to. In 10 days, Virgin Mobile will also be offering the iPhone 4S. Yes, that means you can have the newest iPhone with unlimited data for as little as $30 a month. Since the phone isn’t being subsidized, it does cost more from Virgin Mobile but the monthly savings outweigh that upfront cost over a 2-yr contract period. In the case of AT&T and Verizon, the savings actually exceed the entire cost of the unsubsidized phone so you’re essentially getting it for free and then some.

This doesn’t mean everyone should necessarily sign up for a prepaid plan. For one thing, if you’re still in a contract, you could end up owing a hefty fee to terminate it early so either make sure that the savings from switching now are greater than that fee or wait until your contract is up. (One way to get out of a contract early without a penalty is to terminate it if you get a notice from your provider with small print letting you know that they’re changing the terms of the contract.)

Another issue is that you might live or work in an area that doesn’t get good reception with the prepaid carrier. All the savings in the world won’t do you much good if you can’t actually use your phone. You can minimize this risk by sticking with a plan that offers coverage from one of the big 4. I can tell you that I travel a lot for work and I’ve only been in one area (which was literally in the middle of a desert) that I didn’t have coverage in because only AT&T worked there.

Finally, there are those who feel like they have to have the absolute latest and greatest technological gadget as soon as it comes out. These are the folks who will be lined up outside Apple stores the night before the iPhone 5 comes out. But that’s like paying the price for a new car and getting the unknown quality of a used one because you become the guinea pig for the rest of us to see what problems your gadget will have (remember this?) We can then then use that information to decide what to buy and get it at a much lower price.

On the other hand, it does pay off to be an earlier adopter of innovations that can save you money. Think of how much cheaper it is to buy your favorite songs from iTunes instead of having to purchase entire albums with songs you don’t want or to rent movies from Netflix or Redbox rather than the local video store. In fact, when you consider what has happened to both record stores and video stores, it wouldn’t surprise me if cell phone contracts eventually go the way of these. But if I’m wrong, you can always switch back. It’s not like you’ll be stuck in a contract.