Contracts, Payment Plans, and the Real Value of Your Cell Phone

By Jeff Renner on October 12, 2015

“But it only costs a dollar.”

I have heard this many times when customers are confused about having to pay $300 for a damaged phone when it only cost them $1 to buy.

It’s more complicated than that, I explain.

In the last year or two, the wireless industry has seen a transformation in how consumers purchase their cell phones — moving from a "subsidized" model to a financing model.

In the beginning of the wireless boom, there were very few cell phone models to choose from. Most companies sold one or maybe two models of an analog "bag phone." The equipment was quite expensive and it was a challenge for the average consumer to come up with the cash to purchase one. This is how the concept of subsidized phones and service contracts was born. Wireless providers would simply build the cost of the equipment into the monthly rate plan price, so that over a two-year contract period the equipment would be paid for. (This also explains the reason for the early termination fee, which was put in place to help offset any unpaid balance of the equipment.)

Over time, customers forgot just how expensive cell phones really are because of this practice.

Fast forward to today, and you see a wide array of wireless equipment with costs all over the board. Some lower-end smart phones can be purchased in the $150 price range, while high-end phones can cost as much as $1,000. This huge gap has forced companies to move away from the subsidized model to the handset financing model.

If you divide up the cost of a $1,000 phone over 24 months and compare that to a $150 model, you can see how it would be tough to set a rate plan that was fair and equitable, while ensuring wireless companies didn’t lose out on the real cost of these phones.

The answer is to remove the phone subsidy from the rate plan, so customers pay for the service separate from the equipment. Then customers can make payments on the equipment spread over time. That’s how we do it at United Wireless.

By making the cost of these devices more transparent for our customers, we hope to clear up the confusion about the little minicomputer in your hand (that also happens to make phone calls).

Once you know that, you can better safeguard your investment with insurance, protective cases, and more.

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