Originally published at: http://www.howtogeek.com/186582/dont-fall-for-it-free-phones-cost-360-199-phones-cost-1040/
The numbers in the title will vary from carrier to carrier and phone to phone, but we show how we came up with these numbers below. They illustrate how you’re paying more when you buy a phone on contract, even if it doesn’t seem like it at first.
This is really nothing new.
Some of us here can remember the days of American Telephone & Telegraph - otherwise known as "The Phone Company" -- because it basically it was the one and only source from where any individual or business could obtain telephone service.
Just as in the days when the big Hollywood movie studios also owned the theaters in which their movies were shown -- AT&T owned all of the equipment...and the only way for you to have a physical telephone in your home or office was by renting it from AT&T - which was an additional charge added to your phone bill.
Back before the big breakup, there was no other option - there was no such thing as being able to buy your own phone from an electronics or household appliance store...it just didn't exist.
We paid for the dial tone, for the hardware, and for the maintenance if and when anything went awry.
Chris uses the cable companies to make a comparison - asking us to imagine what it would be like to have to pay a monthly fee for our TV set -- However, the better equivalent is the cable box itself, which you are forced to accept by your provider, for which you also pay rent and are unable to own outright or purchase from any other source.
Businesses know very well that many people do not have the resources to pay $600 up front for a cell phone - and if that was the only option, their sales volume would probably be much lower than it is.
So they use time-honored marketing and sales tools - such as knowing that many customers will find a monthly bill of $80 much easier to absorb - both financially and emotionally - and find clever methods to ease the pain and make us feel better - even though we know we're being stung in some way.
Now I have an article to point my family at next time they want to upgrade.
So lets do some basic math...
$199.99 phone on contract (iPhone 5s) plus $80/mo for 2 years equals $2120. If you had to buy an iPhone 5s straight up it will cost you $650 plus $65/mo for the same service as before (2GB monthly), over 2 years equals $2210. Now if you finished your 2 year contract and decided not to get a new phone then you will be saving money. But trying to spin the numbers to support your thesis isnt cool. Trying to compare Straight Talk to AT&T isn't right. You might as well head use Republic Wireless in your example. Republic is only $299 for the phone (MotoX) and as little as $5/mo for service.
I'm not saying that AT&T is great or anything and the big telcos are definitely screwing the customers, but if you're gonna write an article trying to give "good" advice on how to handle cell service... please compare apples to apples and oranges to oranges.
Also, to add to this point, you are ignoring the finance cost of the upfront payment, and , from cognitive perspective, must take hyperbolic discounting into consideration.
Also, is it mandatory to change phones as soon as the contract expires? I don't honestly know, we do not have the "phones on contract" system in India, or at least it is not widespread!
That's pretty much what I was thinking. I cut the TV cord finally because the cable company was making it so you couldn't do anything without their stupid box. I don't watch that much television anyhow, and what I do can be found on the net somewhere.
As far as giving a free TV in exchange for higher cable rates, though, don't give them any ideas! They're jerks enough to do it!
Its actually a harder calculation that you might think, you have to factor in the benefit of paying for the device over 24 months rather than in one go.
Thank you for the article Mr. Hoffman. I appreciate bringing up the discussion of discounted phones vs. paying full price for reduced service costs. While I think your argument that it is more cost effective to pay the full price of a phone and then use a service provider that offers a discount is correct, I think that the title to your piece is somewhat misleading. I agree with GeekyMcGeekerso's qualm that your article doesn't quite compare apples to apples because your argument regarding saving money basically only applies to companies like Tmobile who force you to pay a higher price for the "discounted" phone over the course of the contract. I wonder how your argument would fair with regards to a company like Sprint that does not discount service for being off-contract and bringing in your own phone. Maybe a different title/focus where you advocate for either At&t and/or a non-major telcom provider would make your article stronger. Either way, I appreciate you bringing up the subject because I have definitely been trying to find the best way to get a phone that I like while saving the most amount of money without sacrificing quality of service.
The answer is simple.
Don't purchase phones with contracts and don't purchase phones you can't afford by just using cash.
Best bet is to save your money and buy stock in the companies so you can participate in the "rip-offs" but to your own benefit. (LOL)
Thank god for the Nexus lineup. Buy a flagship phone for $300 and take advantage of the $20 monthly discount on the plan. Has the added bonus that you can cancel the service any time without fees and stuff.
This was a most timely article. Considering that I'm an accountant, shame on me! My wife and I have iPhone 4s phones on a 2-year contract ($120 plus tax $147 total for 550 minutes, 200 texts, "unlimited" data) that just ended. Our combined monthly data averages around 500MB with the max less under 1GB. Keeping our phones, our new plan is unlimited talk and text and 1GB data for $75 plus tax.
So if we opted for new phones, the difference in plans, plus the $200 each up front, would be $1,480 plus taxes for two phones, or $740 plus tax each. And that's not even the whole story, Our 550 minutes plan was inadequate and we were using accumulated rollover minutes from the 1400 minute plan we cut back a year ago. So to continue we would have to upgrade to more minutes for at least another $30 a month, or another $720, making the effective cost of the two phones around $2,200 or $1,100 each. Yes we could cut back after accumulating minutes and got the two year cost down to $1,840 or $920 plus tax per phone. The author's point is totally valid, though, and was a great wake-up for me.
You might be paying extra but that should also include calls, texts and web access, but I dunno, haven't actually read the article but that's what's included in UK plans
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