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New cellphone carriers should offer contracts

04 Aug

Cellphone users hate contracts, right? Yes, they do, but there’s one thing they hate even more: shelling out big bucks for phones. As someone who just plopped nearly $600 on a new smartphone, I can attest to that.

That’s why the rumblings are starting about Canada’s new cellphone carriers, particularly Wind Mobile, ditching their anti-contract stance. The Financial Post had a story the other day about Wind moving toward offering those hated contracts, much like the big three (Bell, Rogers and Telus) do. According to a Canaccord Genuity analyst who met with Wind management, the carrier will begin offering contracts starting with the back-to-school season.

Wind chairman Anthony Lacavera said the analyst had misunderstood what the company was planning, but the article didn’t elaborate much on what he actually meant. Lacavera later cleared it up when he explained to me that Wind wasn’t going to introduce contracts, but rather it was looking to expand its “tab” feature, which allows customers to pay off their phones over time.

Currently, the WindTab lets customers put up to $150 of their new phone on a sort of layaway plan. Each month, Wind takes the equivalent of 10% of the customer’s bill off the amount they owe on the phone. So, if the bill is $40, the customers owes $4 less on the phone. The higher the bill, the faster the phone gets paid off. If the customer wants to switch carriers or get a new phone, they have to pay off whatever is left.

Lacavera told me the company is looking to raise the amount that customers can put on their tabs, with $250 being his preference. That would put some of the higher-end smartphones, which generally sell in the $500 range, within the comfortable expenditure reach of the average consumer.

I wrote about this tab idea, started by the likes of Telus’s Koodo and Bell’s Virgin, a while back. While it may seem like a decent half-measure between a contract and buying a phone outright, it’s actually not very different from a contract. Paying off a $150 tab at $4 or $5 at a time means the customer will be free and clear in about three years, which is just as bad as any Big 3 agreement. Extending the tab to $250 would make it worse – at $5 a month, that shiny new smartphone would be paid off in four years.

In the end, the customer pays for the phone one way or another, either up front or over time. Is a tab therefore better than a contract? It’s really six of one, half dozen of the other, pardon the cliche.

With Wind and fellow new carriers Mobilicity and Public Mobile offering considerably better monthly service plans than the Big 3, it’s time for them to indeed give up their anti-contract stance and call a spade a spade. As long as they keep the deal terms reasonable, like one and two years rather than the world-leading three years of the Big 3, and as long as they maintain the option to buy up front for those who want it, there’s no shame in offering contracts.

Compared to spending hundreds of dollars on a phone up front, they really are the lesser of two evils.

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5 Comments

Posted by on August 4, 2011 in mobile, telecommunications

 

5 responses to “New cellphone carriers should offer contracts

  1. Derek Scott

    August 4, 2011 at 12:25 am

    They’re not the same at all.

    When I was with Bell, I got a phone on a 3 year contract, but still had to pay $300 up front. I paid them $80 a month for service, then, when I wanted to get out of the contract, I had to pay another $500 (I’d already done 2 years of the contract).

    With Wind, you get, say, a Nexus S for $375, then each month the Tab gets paid down just by paying your normal monthly bill. If you want to cancel with them, you only pay what’s left on the Tab, ie. what you would have paid for the phone to begin with. There’s really no extra charge for the phone, you’re just paying off part of it in monthly instalments.

     
  2. Corey Michaels

    August 4, 2011 at 1:06 am

    If WIND wants to offer contracts, they should take a hint from the T-Mobile US business model – customers who bring their own devices or pay full price pay less per month.

    I think a $15 a month premium for users on contract is fair. It’s essentially a reversal of the Big 3 business model, which is to actually charge customers who bring their own devices MORE than those who sign long-term contracts with device discounts. This way WIND et al can make everyone happy – the people who don’t mind paying full price for devices to be free of contracts, and the people who flock to the Big 3 for the $0 smartphones.

     
  3. Marc Venot

    August 4, 2011 at 3:29 am

    Those telcos are not leasing compagnies so they are only facade to specialized ones. Better to look at the fees and quality of the service provided when changing those fast obsolete gizmos.

     
  4. Ben Babcock

    August 4, 2011 at 10:11 am

    I’ve always been under the impression that contracts are actually a good thing for the customer, because the contract guarantees me the rates and plan features I signed up for. It’s just egregious when carriers offer only very long-term contracts. My carrier offered me 1-year, 2-year, and 3-year contracts when I got my new phone, with the longer contracts giving me the phone for a cheaper initial price. I went with the 3-year contract because I know I’ll be happy using my phone for three years, but I like that I had the option.

    It’s great to have the option to purchase a device outright, but I wouldn’t want to pay $699 every year or two years just get a new phone. So even without a contract I would probably end up using the same device for three years—I might as well sign a deal with my carrier that makes the phone cheaper and guarantees my plan.

     
    • petenowak2000

      August 4, 2011 at 10:27 am

      Ha, oh, ha ha, oh Ben, that’s a good one! I can’t tell you how many times my carrier tried to change my terms and raise my rates in the middle of my contract. It got to the point where I took them to the Commissioner for Complaints for Telecommunications Services in order to get my contract voided. They have supposedly been better in recent years as they enacted a Wireless Code of Conduct (http://www.cwta.ca/CWTASite/english/codeofconduct.html), which lets customers keep old terms in case of changes or terminate their contract without charge, but I wonder how many people are aware of those rights and how many times the carriers violate them.

      But yes, you’re right about paying for a phone and using it for a while, which is exactly why Wind and Mobilicity should just swallow their anti-contract stance. With any luck, they’d be better about honouring the terms than the big three have been.

       
 
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