Ditch your contract, and go unlocked – here’s why

November 27, 2013
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Google Nexus 5 black aa 13

There was a time when prepaid cellular service was considered to be nothing more than a third-rate alternative to contract-based phone plans in the United States.

There were a few reasons for this line of thinking. First, the big four carriers had done an effective job of brainwashing us and had relatively tight control over the market. Second, prepaid carriers generally had a very limited selection of handsets, poor cellular reception and pricing that wasn’t necessarily much better than postpaid.

In the last few years, we’ve seen a major transformation in prepaid. No longer is it only associated with teenagers and those with extremely tight budgets. The phone selection and reception has also greatly improved. In fact, most GSM-based prepaid carriers will allow you to activate nearly any smartphone you can get your hands on, as long as it is compatible with the network’s frequencies.

Additionally, plan pricing has dropped significantly in recent years, with carriers such as StraightTalk offering unlimited smartphone talk/text plans for as little as $45 a month.

Thanks to all these combined factors, the prepaid market has expanded dramatically in a relatively short period of time. In Q1 of 2012, 79% of all smarphones sold in the United States were activated to a postpaid (contract) plan, with only 21% going prepaid. By Q1 of 2013, prepaid had risen up by 11%, and has continued to climb upward throughout the year.

npd-chart

Advantages of switching to prepaid

The most obvious advantage for switching to prepaid is that you can save money, and a lot of it. While some folks reading this might be more than capable of affording their current $100+ cellphone bills, why should you spend more than you have to when you can get nearly the same service for as little as half the price? That’s right: half the price.

If the savings are really that dramatic, why aren’t even more folks on prepaid yet? The problem is that there is a false perception that prepaid carriers are still inferior in some way to postpaid, but in most cases this isn’t true.

Often enough prepaid offers more data, voice minutes and texting at a lower price than the contract plans. Prepaid carriers also use the same networks as the bigger cellular providers, and often even provide the same roaming features.

The only area where postpaid carriers generally are ‘better’ is in customer service, unless you go with prepaid services directly from AT&T, T-Mobile or any other the other big four carriers. Still, even if the customer service isn’t as good as you’ll find in a postpaid situation, it is still generally “good enough” to handle most customer inquiries — with a little patience.

Are there any other advantages besides saving money? Actually yes

  • You own your phone: it’s unlocked and you can do with it what you please. Not satisfied with T-Mobile? Switch over to StraightTalk. If StraightTalk doesn’t fit the bill, you have other options including AT&T GoPhone, AIO and more.
  • You can take a break without worry. While postpaid carriers sometimes allow an “account hold” to be placed when traveling abroad or while on active military duty overseas, there’s a lot of hoops to cross through first. With prepaid, you skip the drama and simply shut down service until you need it again.
  • Take your phone with you overseas without paying crazy international roaming rates. Because your phone is unlocked and ready to go, you can put a foreign SIM card into your device and use it while abroad. When you return home, it’s easy to put back the old card and return to the U.S. carrier of your choice.

Motorola G Hands On AA  (8 of 17)

Okay, but what about the hardware costs?

There are a lot of folks that like the idea of saving money, but there’s one big hurdle in the way: starting costs.

With a contract carrier like Verizon, you get to buy your handset at a lower subsidized rate, somewhere between $100-$300 for most mid-to-high range handsets. Getting the same device unlocked and off-contract could cost you anywhere from $500 – $800 dollars!

The good news is that there are ways around this. One popular way is to find a gently used device on a trusted site like Swappa, which is an online marketplace that deals exclusively with the sale of pre-owned mobile devices.

For those that want a brand new handset at a killer price, you can also go the Nexus route. For just $349 for the 16GB model, the Google Nexus 5 is a high-end Android experience at a very affordable price point. The only potential downside to the Nexus 5 is its somewhat weaker battery and camera.

If you feel that paying $349 outright is still too much for a new handset, you’ll want to turn your attention towards the Moto G.

At just $180 for the 8GB model, this handset is an absolute steal. Just yesterday the handset officially became available for order in the United States and can also be found in several other countries across the globe. The Moto G is no Nexus 5, but the Moto G’s quad-core Snapdragon 400 CPU is still more than capable of providing a solid Android experience at rock-bottom pricing.

As you can see, getting involved with a prepaid plan doesn’t have to be difficult or pricey, as there are plenty of decent handsets that can run you well under $350 outright.

Real savings: Visualized

Ok, but you still have to drop your carrier and take a leap of faith, hoping that prepaid is everything you dream it will be. So is making the switch worth the initial aggravation? If you’d like to save $1000+ over the course of a two-year period — than absolutely.

To give you a better idea of what kind of savings you’ll get by switching to prepaid, we’ve created a chart that estimates the total cost of ownership for AT&T and Verizon versus just a few no-contract alternatives.

Now it’s important to note that certain costs like taxes and fees are rough estimates, but we’ve talked with real customers and scoured various carrier forums to ensure that the numbers provided are reasonably accurate. Of course rates can and will vary depending on your state (taxes), phone plan and other factors. Also keep in mind that we listed the Moto G for the no-contract carriers, as it has the same price as the on-contract Galaxy S4.

Obviously the Moto G isn’t going to provide quite as beefy of an Android experience as the GS4, but it’s actually pretty close considering how much cheaper the handset is. If you feel that GS4 vs GS4 would be a more even comparison, you simply need to add $427 to the total cost of ownership for all three no-contract carriers.

 
Verizon (postpaid)
AT&T (postpaid)
AIO Wireless (prepaid)
StraightTalk (prepaid)
T-Mobile (post or prepaid)
Device$200, Samsung Galaxy S4$200, Samsung Galaxy S4$200, 16GB Moto G$200, 16GB Moto G$200, 16GB Moto G
Activation fee (one-time)$35$36$10 for SIM card$7 for SIM card$10 for SIM card
Monthly plan cost$60 for 2GB$50 for 2GB$55 for 2GB high-speed, unlimited at lower-speed$45 for 2.5GB high-speed, unlimited at lower-speed$60 for 2.5GB high-speed, throttled after this
Monthly access rate$40$45N/AN/AN/A
Estimated fees and taxes$15 estimated$15 estimatedFees/taxes included in pricing$5 estimated$5 estimated
Estimated total ownership costs (over 24 months)$2,995$2,876$1,530$1,407$1,770

Looking at the chart it becomes obvious just how much you really do save when you switch over to prepaid. On the high end, Verizon service with 2GB of data costs as much as $115 after tax, making for a $2,995 total cost of ownership over two years. That’s $1,588 dollars more than StraightTalk, or what would be equal to a saving of about $66.17 a month!

Bottom-line, there are few good reasons to stick yourself with a contract these days. So do yourself a favor and stop paying more than you have to by going unlocked!

Comments

  • Don Jason

    This reaaly helped, thanks!

  • Bradley Uffner

    Ahh, the “Monthly Access Rate”, AKA, the “F* you, because we can” fee.

    • Nickan Fayyazi

      Problem with Ting is that prices skyrocket if you use more than one gigabyte of data. My current $30 T-Mobile plan would be over $100 on Ting.

  • Zbrah

    You should mention the $30 T-Mobile plan. I’m on it right now, and it’s incredible.

    • NeedName

      T-Mo has some great plans.
      $30/month for unlimited text & data (5 GB @ 4g) and 100 voice — for the person who doesn’t talk much. . .like me.

      • Androidway

        What $30 plan?
        Does it work on unlocked phones or only with T-mobile phones?

        Send me the link.

        • Austin Erck

          Same Question, I’m kinda done with AT&T. This might be a good alternative for me.

          • AndroidBoss

            I saw it on the website. Says unlimited Internet and I think text; but 100 minutes only. So sounds good I hope it works for unlocked phones. Gonna go to the T-mobile store and see. If not I will get the $50 plan.

    • icyrock1

      Seriously. Best plan ever. 60 minutes + the 60 Skype minutes I get a month more than covers how long I’m on the phone.

    • http://www.facebook.com/lucyparanormal Daniel Tiberius

      ditto, I have my wife and I’s phones moved over to this now. Cannot be beat.

    • http://www.peopleconnectpeople.com/ Silveryhat

      You should also try Solavei (http://peopleconnectpeople.com) $39 or $49 unlimited text-talk-data plan, they all run on Tmo 4G network, too. The difference is just that it has a compensation plan like DirectTV, but pays monthly for referrals.

      So here’s the story. I switched from a two year sentence with Sprint to Solavei (Sprint gave us a horrible experience with bad reception and lot of hassle when it comes to termination / phone compability with other networks), dragged along me some friends who also grow tired of their expensive bill – almost $200/mo, exactly just like what the author said. Check out the image attached.

      Now if you haven’t know, Solavei pays $20 every month for 3 person we refer. I brought in 8 friends (2 x $20) so basically my $49 bill is only $9/mo.

      I could try to get one more and actually make $10 profit each month but any how, I’m happy with $264 in two years. For those don’t know anyone who pays expensive bill to refer, you are probably best with the $39 plan. It has unlimited text-talk-data with first 500MB on 4G each month.

    • Androidway

      What $30 plan?
      Does it work on unlocked phones like Nexus 5? Or do you have to buy the phone from them?

  • King Dong

    It’s good in principle but the trouble is most high end phones cost a mint and most ordinary plebs can’t afford to pony up that kind of money in one shot hence why people get phones on contact

    • Nickan Fayyazi

      Nexus…?

      • Jean Cédric Huet

        As much as I would like it to be, the Nexus brand is not for everyone. Some people like more modest phones, some more beefier. I like to have an SD Card slot and replaceable battery.

        • Nickan Fayyazi

          Yeah, but one shouldn’t complain about unlocked phones being expensive if there’s that low-cost option. Otherwise I agree, Nexus phones aren’t for everyone.

  • Paul

    This is what I told people since the Nexus phones began. However, the article should mention the huge reason why I’m back on a post-paid now that t-mobile’s prices are fantastic; building Credit!

    T-Mo family plan post paid for my gf & I comes out to $60 each for unlimited everything (yes data too).

    A monthly phone bill, timely paid, is one of the easiest & most common ways to have a healthy account building your credit. You can still reap the benefits of buying an off contract phone; hell, T-Mobile doesn’t even do contracts anyway so I could cancel anytime!

    • NeedName

      I’m sure you know thus, but for anyone else who doesn’t. . .

      if you have multiple lines T-Mo starts at 50/30/10/10/10 for up to five lines — that’s $50 for first line, $30 second, $10 each after that = unlimited text, voice, data (500 MB @ 4G)

      add $10 to increase 4g data allotment. . .

      Hard to beat that for anyone with multiple lines in a T-Mobile area.

    • WestSiide

      A cell bill does absolutely nothing to build your credit. However, become delinquent on your bill on post paid, and it will go into collections, therefore having a negative impact on your credit rating.

      • Paul

        How does an open account, paid monthly, that gets reported to credit bureaus and shows on my “successfully paid bills” lists on my recent credit reports not count towards credit rating? How can a reported bill only impact your credit negatively and do “absolutely nothing to build credit?”

        • WestSiide

          Only loans will show up as current, late, or delinquent. A cell phone bill is not a loan, unless you fail to pay, then the amount due gets sent to a collections agency, and once that happens, it’ll reflect as a negative account on all 3 credit bureaus.

    • Displayer

      Buy a TV or Camera on credit and pay it off monthly ;-)

  • Piterson Massenat Desir

    Great article guys! I push prepaid as much as possible. Also being with Solavei, I want to push prepaid (specially us) to help people save money and that’s all. We share to help save.

    • paxmos

      And also get your share…

      • Piterson Massenat Desir

        With solavei, yeah, but if someone doesn’t like T-Mobile coverage, I push net 10 or straight talk AT&T for them to save still. I hate contracts!

  • Shark Bait

    Unlocked nexus, Sim only plan = £10 a month for me! I laugh and my iphone friends paying £45 a month!

  • Santeri

    Meanwhile in Finland.. Unlimited LTE for 15 € a month. Add a little call time and SMS and it’s 20 €.

    • Rex Majors

      Did you say UNLIMITED LTE? Like unlimited LTE data? Seriously? What kind of speeds? What’s the most you’ve ever been able to pull down in a 30 day period? That’s incredible.

      • ikeeDx

        Well here in the Philippines, you get unlimited LTE/data/SMS and Calls for more or less than $50-60. And you get a free Galaxy Note 3 :)

      • Toss3

        100mbps. Donwloaded 30gb a couple of months ago over lte. Then there’s also the benefit of having almost no more 24month contracts, and the phones aren’t bound to the mobile contract anymore, which means that you can buy a phone from one carrier and use it on another without any issues and without paying a cent extra over the retail version (just take retail price/24 and that’s what you pay(interest-free loan pretty much)).

      • Santeri

        Finland is known for cheap data plans if compared to other countries. Providers are thinking of pulling the prices up already next year tho. Yes it is unlimited and in cities I have got something like 60 MB download speeds. Dunno if it’s much. I just tether it to laptop and watch movies :D usage goes well over 30 gigs a month haha.

  • Fred

    You’ve half got it, but its wider than that. If you have a prepaid plan with a reasonable long expiry and rollover on the credit, your average monthly spend on credit matches you average monthly usage. If you are on a contract but your usage varies month to month, you average monthly spend will match your MAXIMUM monthly usage – since you need to be able to deal with the peaks. This pushes up the effective cost and it’s why (unless you have a uniform usage pattern, you win with prepaid).

    In short, you are more in control of spend – and it better matches your usage.

    Where SIMs and GSM are the norm there are roughly the same percentage of contract customers as prepaid – and the carriers need to compete on price & service more, since they know switching is a matter of switching SIMs (and churning the number across).

  • icyrock1

    I recently got my mom off of her contract. She was surprised I was able to bring her bill down from $300 (for three phones) to $60 a month (through a mixture of Ting and T-Mobile). Not to mention, the customer service is better, to.

  • Grman Rodriguez

    What about starting costs if you want premium and new?

    • Andrew Grush

      As mentioned, if you want a high-end device and aren’t interested in the Nexus 5, costs are going to be somewhere around $500 – $800. Of course that’s going to be too much for some folks to spend all at once, which is understandable. Even so, the long-term savings (over two years) is still around the $1000 mark.

  • Oli72

    t-mo thx for the service and price in charlotte,nc. nexus phone $60 no contract.

  • Azeem

    And the moto g is coming in December instead.

    • Tuấn Ankh

      And they are gonna be shipped in 5 days! :D

  • Abner

    Too bad most of these advantages don’t apply to Canadians. We’re generally stuck with the Big 3 carriers or getting cheaper spotty coverage.

  • Mike

    Nice read, I joined a company called Solavei last year and now my service is Free, service is great in the NY LI area, they use T-Mobile’s towers. They pay monthly for referrals $20 a month for 3 lines referred

    • Mike

      I use Alcatel One Touch Fierce 4G, works great and is fast, only $129 at Best Buy

  • RATBURL

    The problem with an unlocked phone is you don’t get software updates all the time.

    • Nickan Fayyazi

      What? Most unlocked phones actually get updates faster, since the updates don’t have to go through the carrier. Especially if you have a Nexus phone (though that still applies even if you have a non-Nexus).

  • https://plus.google.com/+TroyLeonard Troy Leonard

    Tmo nexus 5 one one line galaxy’s on the other 3 for a total of 120 unlimited everything. Awesome coverage and pricing

  • Alex James Simon

    Or if you want to save big bucks, and only use data through wifi mostly, switch to tracphone and buy a Nexus 7 (2013) that’s what I did.

  • longhairbilly

    Just received my Nexus 5 yesterday. I set it up on T-Mobile’s $30 plan. I was willing to take a coverage hit for the $55 a month in savings.

    Here’s what shocked me, I ran errands today, went to the gym ect. I carried both phones (Verizon Gnex) and to my surprise the signal was just as good on T-Mobile as it was on Verizon.

    I can’t use my Verizon phone in the gym because I don’t get a good signal. Today I streamed YouTube with two bars of LTE for 30 minutes. I’ve never been able to do that with Verizon.

  • Benjamin

    Because you’re phone is unlocked and ready to go, you can put a foreign SIM card into your device and use it while abroad. When you return home, it’s easy to put back the old card and return to the U.S. carrier of your choice.

    *** YOUR PHONE

  • iamtravis182

    As touched upon in this article, going the SIM route can be difficult without adequate customer service.

    Getting LTE, and MMS to work on my Nexus 5 on Straight Talk took a couple of weeks, as I had to wait for people to fine tune the APN settings to see what worked best. I even had to do a factory reset and start the process over again in order to get MMS to function properly.

    While I was figuring out the APN with the Straight Talk SIM, all I could think about was how difficult this process would be for my parents, or non-techie friends. But it was totally worth it to jump off the Verizon cruise ship and join my brethren on the Unlocked Pirate Ship!

  • MadCowOnAStick

    “The only potential downside to the Nexus 5 is it’s somewhat weaker battery and camera.”

    did you mean its :D

  • Mali

    Aside the unlock idea… This article is garbage.. Ever heard of loyalty discounts? I have 4 lines in my family plan.. All unlimited talk, text, unlimited high speed. (Cap is 9564.25 gb.. Lol.. Don’t ask how they figure that) and 2.5gb hot-spot per line.. The bill is $223.57.. Divide that 4 ways… Bill is $55.75.. Soo umm ya stupid article!!.. I have T-Mobile

    • 744

      You know what? The one really stupid is you! You are happy with some stupid loyalty discounts when you can actually pay way less with the current T-Mobile postpaid plans?
      Here you go:
      Line 1 50+20 (unlimited voice & text + unlimited data on all lines),
      Line 2 30+20,
      Line 3 10+20,
      Line 4 10+20
      = total $180 all 4 lines unlimited
      Take your ignorance somewhere else.

  • Bjajjull

    The prices in US are insane. I live in Sweden and my subscription contains 3GB data with 4G, 200 calls, length doesn’t matter, and 5000 SMS/MMS each month for around $38.

    The devices here are more expensive though, for example the Nexus 5 costs $600 and the iPhone 5s costs more than $950 without contract.

  • zaza

    100$ bills in usa ? incredible !! here in france i got unlimited phone/sms/mms and 3g data for only 20€

  • Astridax

    Wow, why are phone contracts such ridiculous prices over in the US?

    In the UK:

    £33pm (Three UK – 500 minutes, 5,000 texts, unlimited data (no tethering) + £29 up front for the phone. If you are willing to pay £37pm you get 2,000 minutes, 5,000 same network minutes and tethering.

    Granted other networks can be slightly more expensive and you get less data, however that still works out cheaper than what you guys are paying.

    Taking a £35 average contract price:-

    24 * 35 + 29 = £869 ($1416 over 24 months).

    Compared to phone purchased from Amazon + Sim Only 1 month rolling contact (you can cancel any time):

    An off contract device is £389 and comparative sim only 1 month rolling contracts is approximately £12-£15 per month (£18 for all you can eat data + tethering). The overall cost would be roughly £389 + 24 * 15 = £749 ($1220). That difference is hardly huge especially when you consider that you have to pay £389 up front. The price difference would be smaller with a newly released device since the upfront costs can be well into £500.

    I think for newly released devices, especially if you are going for unlimited data and tethering contracts from 3 turn out to be slightly more expensive when purchasing the device off contract. The exception here being with things like the Nexus devices or Moto G.

    What’s more is if you purchase a 24/18/12 month contract from a place like Carphone Warhouse or Phones4U you can get a factory unlocked device both from a bootloader and sim lock perspective + no branding.