T-Mobile has effectively put an end to wireless contracts, opting instead to allow all customers to sign up for “pay-as-you-go” service similar to the plans offered by Straight Talk, TracFone, Virgin Mobile and others. Could this be a trend sweeping the industry? I happen to think it is.
Pay-as-you-go cell phone service has been offered for years by TracFone and their no-contract brethren, but the concept really hit its stride when Wal-Mart jumped into the game with their Strait Talk service. The thought of being able to switch carriers at a moment’s notice without having to pay a penalty is causing customers to jump ship in large numbers when their contracts expire, switching instead to companies that don’t require a contract.
The once-dominant players in the cellular industry have taken notice and most now offer pay-as-you-go plans of their own in addition to the standard two year contracts. But T-Mobile has apparently seen the writing on the wall in regards to the future of long-term contracts and simply decided to end them once and for all.
While “pay-as-you-go” has obvious benefits, there is also a drawback. Since you aren’t locked in to a two year contract, the carrier can no longer afford to subsidize the most powerful and capable phones. If you want one you’ll either have to pay for it yourself upfront or agree to make a hefty down payment and have the remainder of the phone’s cost tacked onto your monthly bill in installments. And those monthly installments can be as much as 25% of the monthly service fee!
I believe the days of long-term cellular contracts are numbered. As more people become accustomed to paying for their phones up front and then paying a monthly fee for the service (similar to buying a computer and then paying a monthly fee to an ISP), the number of people remaining on long-term contracts will decrease until they are no longer profitable for the carrier. The key here is the freedom to switch carriers on a whim, and I think before long we’ll all be able to do just that.