AT&T is doing away with most of their two-year contract subsidized phone plans. Customers will now have to either buy new phones at full price or purchase them via an installment plan.
For years AT&T, and indeed the entire cellular industry, has been selling customers lock-in contracts in order to sell phones at reduced prices. The goal here, of course, was to get phones in the hands of as many people as possible.
Clearly it worked. How many people walk around without cell phones anymore?
For most customers, especially those that don’t pay attention to their bill, this may seem like a great deal, and many people will likely be upset by this news even though they will end up paying less.
For those that want to pay more over time instead of everything up front, AT&T will offer installment plans. Yet, unlike the subsidies, once the phone is paid off the customer will no longer have to pay extra fees, which is how it works now under the current contract system.
Why is AT&T just starting this now? We’ve all had phones for a while
Well, as mentioned before, the initial purpose of the old contract system was to push phones into the hands of customers. After that was successful, carriers realized that they would make less money if they switched to a pre-pay model so they didn’t.
The main reason AT&T is finally doing away with contracts can be whittled down to a single word. Competition.
Yes, there has nearly always been pre-pay options offered by the major players and others. However, while there were options, they weren’t what anyone would consider favorable.
AT&T, Sprint, T-mobile and Verizon only offered over-priced plans designed for customers who couldn’t pass their credit checks or afford the deposit, and the other services hardly provided any competition due to their poor coverage.
It wasn’t until Tucows created Ting in 2012 that a true alternative to lock-in contracts began. Ting is a pay-as-you-go cell service that started off by piggy backing off the Sprint network. As of 2015, they also support the T-Mobile network.
The following year (2013) T-Mobile decided to ditch contracts and sell only prepaid options at extremely competitive rates. In many cases, the monthly bill was over 50 percent less than a comparative contract plan from AT&T or Verizon.
As we kick off the new year, Big Blue herself is finally doing away with contracts for 2016. Will their prices be as competitive as Ting or T-Mobile?
Probably not, but they also have a bigger network to maintain. So this leaves us with one question.
Now that traditional mobile contracts are finally dead, when will pre-pay die off and pave the way for a truly pay-as-you-go customer-centric model? Only time will tell.