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Cell phone plans: Should you end your contract?
The Savvy Consumer

By Teresa McUsic

Cell Phone Carrier Rankings Based on Customer Survey:

  1. Consumer Cellular
  2. U.S. Cellular
  3. Credo Mobile
  4. Verizon Wireless
  5. Sprint
  6. T-Mobile USA
  7. AT&T

Source: Consumer Reports

T-Mobile’s announcement in March to end cell phone contracts begs the question—should we all drop our contracts?

For many of us, the answer may be yes.

The average American household coughed up more than $1,500 on cell-phones and phone service in 2012, up 7 percent from the previous year, according to a survey by Consumer Reports.

That same magazine called T-Mobile’s new Simple Choice plan with transparent phone pricing “a big step in the right direction.”

“People are switching more to prepaid plans because they are often less expensive and they are offering better phone options like the iPhone and Galaxy S3,” said Logan Abbott, president of MyRateplan.com, a website service that compares phone plans for free to consumers and receives a commission from the carriers. “All the carriers are going with prepaid plan options.”

Even the language is changing in the marketing of these plans, replacing “prepaid” with “no contract,” Abbott said.

“T-Mobile went out of its way this week to not call it a prepaid plan,” he said. “Prepaid has a negative association with people who have bad credit and need to pay month to month.”

But since the Great Recession, the number of no-contract cellphone customers has sky rocketed from 18 percent in 2008 to 28 percent now, according to figures from Sprint. By 2015, the market share for these plans is expected to jump to 30 percent.

One of the upsides to a no-contract plan could be better customer service, Abbott said.

The recent Consumer Reports reader survey supports that. For the third year in a row, Consumer Cellular, a Portland, Ore. provider that only has no-contract plans, was rated No. 1 in customer service.

The company, which has partnered with AARP and focuses its marketing on the age 50 and older crowd, has grown fast. Since 2005, Consumer Cellular’s customer base has increased from 30,000 to one million and its revenue from $17 million to $250 million.

“With no contracts, we know customers can change at any time,” said John Marick, CEO of Consumer Cellular. “Our company and philosophy have been built on customer service.”

Another positive aspect to a no-contract plan is phone pricing transparency, since the service contract and phone are separate purchases. For example, T-Mobile said the Apple iPhone 5 would be available starting in April for $100 up front and $20 a month for two years on top of its service plan. Other new smartphones, like the Samsung Galaxy S 4 and the BlackBerry Z10, also will be available with similar plans and no-cost financing of the phones over time.

Once the phone is paid off, your bill will actually go down $20—something that does not happen when you purchase a phone with other major carriers.

Consumer Reports editors point out that that AT&T and Verizon charge $200 initially for the iPhone 5, plus a monthly fee of an unknown amount that is included in your bill for as long as you use the phone.

“So you might be paying for the phone long after you've forked over the full price,” they write.

No-contract plan offerings have also improved by offering unlimited plans for voice, texting and data, Abbott said. Family plans, with built in discounts, also can now be found in no-contract plans, he said.

Finally, some no-contract plans are getting more sophisticated in telling clients when their minutes are almost up for the month and enabling them to switch to a bigger plan instantly.
“We can text or email our clients and tell them when they are reaching their limits and make a recommendation based on how they are trending,” said Marick. “With the push of a button they can change their plan.”

Before you switch to no-contract, however, be sure to figure out if you are still in a two-year contract and how much it would cost to leave. Early termination fees can run you as much as $350 when you first buy the phone, but the major carriers will reduce that each month for around $10 after that.

Teresa McUsic’s column appears Saturdays. TMcUsic@SavvyConsumer.net.

No Contract Cell Phone Buying Tips

  1. Find out when your contract is up. Contact your carrier. Most contracts are for two years and then month-to-month.
  2. Figure out your usage. Check your bill for the past three months to see how many minutes you have used for voice, texts you have made and how much data you have used.
  3. Top rated prepaid plans by Consumer Report readers include Consumer Cellular, TracFone, Straight Talk, T-Mobile, Verizon and Net10. Most carriers now offer a prepaid plan, so start with them first and try to negotiate a deal.
  4. Compare plans. Websites like MyRatePlan.com, Bill Shrink.com and SaveLoveGive.com will analyze your bill information and make recommendations on where you can save money.
  5. Look at the coverage maps. Make sure your plan covers your area and watch for roaming fees.
  6. Can you get a free phone? Few no-contract plans offer free phones, but some do. Smart phones are now an option for many no-contract plans at lower prices for older phone models.
  7. Check for employee discounts. Many major companies and some associations work with cell phone carriers for employee discounts of up to 25 percent of the cost, but you have to ask for it. Consumer Cellular will give a discount for AARP members, for example.
  8. Remember that you can keep your same cell phone number if you switch to a no-contract plan.
  9. The 911 emergency number will work on a prepaid phone even if the minutes have expired.