Chances are if you are using a phone one of the latest cell phones with a manufacturer’s suggest retail price of $200 or more you are have a 2 year contract with your carrier. Your bill is higher than individuals on a prepaid plan, but part of that bill goes to pay off your phone. The confusion between the true price of the data services that a cellular provider is offering, and the actual price of that phone that consumers are paying each month, is enough to drive some consumers to prepaid plans.
Telecommunications corporations would have us to believe that they have finally embraced the prepaid model that most consumers are leaving post paid cellular service for but that is not entiretly the truth. A new amortized payment model, which is specific about the differentiation as to what you are paying for the phone, and what you are paying for service, would appear to be upfront pricing for the casual observer. But the truth of the matter is that the amortized payment model still requires a good credit score, and the difference between consumers with a $649 cell phone and a $50 cell phone still speaks volumes about your financial situation.
Companies have simply changed the terms by which early termination fees are paid, but this new model is the equivalent of placing a sticker on a used car detailing what an individual’s monthly payments should look like. Take aSamsung Galaxy S5, as offered through Sprint as an example. You can walk out of the store without paying any money whatsoever towards the phone if you agree to pay $27 a month towards the phone for 24 months. A 2 year service agreement requires a payment of $99 upfront. If you do not have any money, $27 a month sounds like a really good deal, but is it?
A consumer would end up paying $649 for this phone after 2 years, using the amortized payment model. They would not have an actual contract with Sprint, but they would be responsible for paying $27 a month, plus the cost of service, each month as to not break the agreement to pay the phone. The agreement to pay off the phone is not an agreement for Sprint to provide cellular data, voice, and text for the consumer. If that agreement is broken, the consumer is responsible for the remaining balance (of the phone, not the service).
A consumer that pays $99 upfront does sign an agreement for Sprint to provide cellular services for 2 years. After a number of rebates and instant savings, the actual price of the phone is $99, but you are locked in with Sprint for 2 years. The consumer that breaks the agreement to pay for the cellular services has to pay an early termination fee pf $350, even though they own the device.
If you can afford to do so, $99 plus a $350 early termination fee is actually less than $649. Two hundred dollars less to be exact; so you actually come out ahead by breaking your agreement. If you actually stick with your contract, you’ve probably paid more for services than you would have if you opted for the 2 year amortized payment model, which is a reoccurring agreement to pay services each month.
The only difference between the old model, and the new model, of cellular plans is that the new model now has two ways in which to lock in consumers, whereas the old model relied on family plans and other creative marketing plans to give the illusion of savings to consumers. The bottom line for prepaid consumers, who walk out of a store without revealing their credit scores, is that they cannot do the same if they were to go for the amortized model; but they should.
A phone is not a car, and it is not a living room suite or a piece of furniture which would actually require a corporation to check a credit score, and to provide that corporation a means for recoup their losses if you actually walk away from your obligations. A phone is just a device that you use to make calls, and a computer that you use to browse the Internet, listen to music and watch videos. A phone may even become a GPS that provide navigation to your destination. So why are we checking credit scores when individuals are willing to pay the full price for their equipment? You aren’t saving money by purchasing a phone using the amortized model, you are just budgeting the price of the phone over a 2 year period to make it affordable.
For those that did not get it I will repeat it one more time; the phone company is not doing any favors by allowing you to pay $27 a month towards the latest phone after checking your credit score. You are already buying a phone that you cannot afford, a phone that the company is probably selling for the costs associated with constructing and marketing the device to you. The company is not making any money off of the sale of the phone, they are making money off of the sale of the equipment, and you have basically signed a document stating that you will stay with the company for two years. So why is the company checking your credit score again?
If I went into Rent A Center and walked off with an electronic device that I am paying a premium for, and they have sold something to me at 350% of cost, I should not have to reveal my credit information. Smartphones either sell at a premium or they sell at a loss; it is not any business of the consumers whatever sacrifices a corporation has made to get technology you do not need into your hands. Companies should allow as many individuals that are willing to make monthly payments towards their device, the ability to do so but they are not because they know that they can always push you into a 2 year agreement, or charge entirety too much for monthly service on a prepaid plan. You are either going to pay a hefty deposit because your credit score does not allow you to walk out of the store for free with a new device or you are going to pay the same amount of money to purchase a device you probably do not want outright, and your first monthly payment towards prepaid service upfront. Three hundred dollars, or three hundred and fifty dollars, the choice is yours.
App development on smartphones is pushing individuals towards expensive devices because most apps do not run well on devices with low resources, and this is true regardless of which mobile operating system your device is running. The average consumer does not know the difference between internal and external memory, so they’ll either purchase a memory card and other accessories before leaving the store if the device can use it, and they’ll probably pay a premium at the store, as opposed to doing research online, where accessories are cheaper than they are in brick and mortar stores. The $50 smartphone locks up when using GPS and might reset when listening to Spotify, and has a 3G radio that is incapable of streaming video without buffering, so you’ll pay an additional $100 to get the latest equipment, except that you probably do not have an additional $100 to spend because you are already paying $125 ($50 for the phone, $50 for the service, $25 for the activation). So you find yourself signing a contract, or an agreement, to get an even more expensive phone for “free”.
I still have a $50 smartphone. I am tempted to purchase a phone for $100 that is four times as powerful, plus $50 towards a month service, with my carrier to get my hands on newer technology. But I am even more tempted to switch carriers, and purchase the phone for $64 upfront, and pay $60 towards monthly service so I can save $26. The phone has a 4G radio, and would be well worth the money, but how quickly I forget how my $50 phone was free when I acquired it, as I only had to pay for a month’s service when I purchased it.
How much is a cell phone really worth? Whatever you’re willing to pay for it. The phone I am interested in runs Windows Phone, and not Android, and I would probably be better off to stick with Android’s idiosyncrasies instead of learn a new platform and work with the limited amount of apps they have. I just need a phone that can runs apps well, a phone that I do not have to rely on the SD card to fill in the gaps for me. They have all of the apps that I need, so what is preventing me from taking the jump off of the cliff?