Earlier this year, cell phone carriers got a big break from the government. The Library of Congress let expire an exception to the Digital Millennium Copyright Act, which previously allowed customers to unlock their cell phones freely. As of January 26, consumers no longer have that freedom. The reason, according to the LoC? There are an abundance of unlocked phone options.
Unfortunately, that’s a terrible reason. Unlocked cell phones are nice, but they don’t provide many advantages for US customers. Perhaps the biggest disadvantage: they cost full retail price. US consumer are used to receiving heavy subsidies on their cell phones, paying roughly $200 for a new smartphone. So while the idea of unlocked cell phones might sound nice, it’s really not nice at all.
Here are five reasons why you should never pay the full retail price for a new smartphone.
1. Plan prices
Here’s a nasty truth of the industry: monthly plan prices are grossly inflated. That $100 per month you pay for your smartphone? The carrier makes an enormous profit on that. One reason is that they hold all the cards. But the other reason involves the price you pay for your phone. You pay only $200, but the phone actually costs $650. The carrier isn’t gifting you that $450. They plan to recover it during the course of your two-year contract.
If you pay that full $650 price for the phone, you’ll still pay the same $100 per month. Yet you’re not receiving all the benefits of that monthly payment. That is, your phone isn’t being subsidized, yet you’re paying the same rate as someone who is repaying that $450 subsidy. If it hardly sounds fair, well, it isn’t. But that’s the way the industry works. Of the four major US carriers, only T-Mobile offers pricing without considering subsidies.
2. The preowned market
Phones break. It’s bound to happen when you’re carrying a pocket-sized computer with a plastic case. In most cases, when you’re considering purchasing a full-priced phone it’s because something happened to your current one. There might not seem like many alternatives exist, but they certainly do. One of them exists right in front of your face.
Every carrier offers a line of refurbished phones. That’s a nice way of saying “used,” but they do restore them and put them under warranty. You can buy these for a decent discount from the full retail price, about $200. Given that the phone you broke was used, it’s not a bad way to save some money. There are also marketplaces such as eBay cell phoens that can provide you with a well-priced device.
3. Different phone, same cost
It might sound like a little inside baseball, but handset pricing in general is a good reason to not pay full price for a phone. Go on your favorite carrier’s website and start looking at both the contract and non-contract prices for smartphones. Notice how they all tend to clump in the same area of $200 (contract) and $650 (non-contract)? The only discounts come when you have a deliberately mid-range phone, or the phone is older and not in production any longer.
In other words, when the BlackBerry 10 cost is the same as the iPhone cost, relative pricing goes out the window. All that matters is the final price tag you pay. Why, then, would you opt to pay the $650 price tag, when other people are paying $200? Maybe if you were paying $650 for a better phone it would be a different story. But you might be paying $650 or an inferior phone.
4. An upgrade is coming
Once you start using a smartphone, it’s nearly impossible to revert. You grow accustomed to all the conveniences a smartphone affords you. So if your smartphone breaks, you’ll itch for a new one. It’s the biggest reason why people bite the bullet and spend $650 on a phone. They just need that smartphone, and will pay that huge price tag. But that’s a mistake.
Carriers offer users upgrades every two years, and sometimes a little more frequently than that. It might seem forever away, but you can make it. If you’re just a few months away and spend the full price for the phone, you’ll still get an upgrade. But what are you going to do with it, now that you have already purchased a full-price phone? You’ll let it go to waste, and the carrier will laugh all the way to the bank.
Many people consider handset insurance a waste of money. Every month you put $10 in the pool, and if your phone never breaks then you never see anything from that money. That is, after two years you’ll have paid $240 and realized absolutely nothing. But that’s simply the way insurance works. If something does happen, though, you’ll wish you were covered.
Even if you break your phone after 20 months, you’ve paid $200 into the pool. Add that to the standard deductible of $150, and you’re paying $350 for a replacement phone. Chances are your phone costs between $500 and $650 with a subsidy, so you’re saving considerable money with insurance. Given the fragility of smartphones in general, chances are you’ll find insurance useful every few years at least. You’ll likely never reach even the $500 level of buy-in.