Verizon announced a massive reorganization of its services on Friday.
The carrier is ditching its service contracts, which means that customers won’t be able to buy discounted smartphones with two-year agreements. Instead, you pay for your service month to month and pay your phone off in monthly installments.
It’s radical for Verizon, but nothing new in the industry. T-Mobile ditched service contracts in 2013, and international wireless carriers almost never have contracts.
But Verizon is also the largest carrier in the US, and when it makes such a radical change, it has the power to influence the entire industry. Plus, at the end of the day, killing service contracts is good for you.
This is a good thing
T-Mobile was the first US carrier to ditch contracts back in 2013, which let T-Mobile customers change phones or carriers whenever they wanted instead of being stuck for two years. In the process, T-Mobile also threw other carriers under the bus by exposing how contracts made it easy for customers to risk overpaying for their smartphones.
Carriers rarely admit it, but when you buy a $US199 phone like the iPhone, you’re not actually spending $US199 for it. That’s just your up-front cost. Your carrier makes you to agree to a two-year contract to get that $US199 phone, and it keeps service plans expensive so it can make up the rest of the cost over the course of your agreement. The iPhone, for example, actually starts at $US649.
That means you would always pay the full retail price for your phone, and you might actually have overpaid for it because your monthly bill wouldn’t change once the difference was made up.
By ending service contracts, Verizon has made a good move for its customers. You now know exactly how much you’re paying for your phone and how much you’re paying for your service.
T-Mobile’s CEO John Legere announced the carrier’s “UnCarrier” plans, which eliminated contracts.
Verizon now has cheaper plans and more transparency, but your monthly bill probably won’t change much
Starting August 13, Verizon will offer only four monthly plans compared to the 15 varieties it currently offers. Each plan has a different amount of data, and all will have unlimited talk and text by default. The plans have simple and familiar names, which could make choices easier for customers, and you can switch plans whenever you want.
- Small: $US30/month for 1GB of shareable data
- Medium: $US45/month for 3GB of shareable data
- Large: $US60/month for 6GB of shareable data
- X-Large: $US80/month for 12GB of shareable data
However, if you go for the Medium plan, you won’t only pay $US45 a month. Verizon, as well as T-Mobile and other carriers who offer no-contract plans, charge monthly fees for each line. In this case, Verizon’s monthly line fee will be $US20 per month.
And if you chose to pay for your phone through monthly installments, that will be added to your monthly bill, but it will be clearly defined from your plan as a separate charge. The monthly cost for your device will depend on which one you buy. (It will probably be around $US25 per month for something like the iPhone or Samsung Galaxy S6.) But you’re also free to pay the full price of the device up front if you want.
After all this, you might find that your new no-contract Verizon bill will actually be similar to your current contract plan, but at least you know where your money is going.
We’re not quite there yet
Verizon’s move is step in the right direction, but it’s only just now catching up to T-Mobile and other, smaller carriers.
There’s still the issue of unused data that you paid for, but doesn’t get carried over for you to use the in the next month.
For example, let’s say you have the Medium 3GB plan from Verizon and you want just a little bit more data for that month. No problem. Just switch to the Large 6GB plan for three extra gigabytes!
But what if you didn’t need all three extra gigabytes, and you end up using only one? That leaves you with two full gigabytes that you paid for, but you won’t ever see again. Those two gigabytes, and essentially your money, fly off into the wind at the end of your billing cycle.
So far, only Republic Wireless offers you a way to pay for exactly the amount of data you use. If you don’t use up all the data you initially paid for, Republic Wireless will actually credit you for the data you didn’t use. When it’s released, Google’s Project Fi, a new wireless service that works in limited areas and on limited Android phones, will also pay you back for data you don’t use.
Still, Verizon’s change is better than being locked in to a two-year contract, and it’s a huge leap that could help spell the end for service contracts. It’s also significant that Verizon is the largest carrier in terms of subscribers, giving the change greater impact.
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