Two year phone contracts are dying. Consumers would think that would make things simpler. But the industry insists on making everything as complex as possible so consumers are tricked into thinking they have a better deal than before. The truth is everyone is getting ripped off. Here is why:
1. Complexity
With the two year contract in addition to a subsidy on the phone, basically all the carrier's plans were straightforward. Now, it is more complex than ever. Why can't America just use the European carrier business model? In Europe, you buy the phone separately, then buy a SIM card from the carrier, paid monthly with no contract. Maybe it's more expensive upfront, but you own the phone.
2. Ownership
With the decline of two year contracts, you pay for the phone per month as well as carrier fees. The thing is you don't legally own the phone, so if it breaks, you'll have to pay for the rest of the phone anyway. Consumers also have to give the phone back to upgrade. Consumers don't have a backup phone because of this model, forcing them to comply with whatever the carrier decides.
3. Anti-competitive
While this isn't exclusively because of the two-year contracts, carriers have always been very anti-competitive. For example, Sprint and Verizon don't use SIM cards. Sprint phones also aren't compatible with Verizon phones and vice versa. Another anti-competitive practice is exclusive phones for carriers. AT&T wouldn't be as successful as it is now if the iPhone launched with all four of the major carriers.
4. Bad Business Practices
Carriers have loads of bad business practices. Carriers forbid tethering on capped data plans so they can charge extra for a feature that the phone can do already. Another bad practice is since the decline of unlimited data plans, carriers automatically downgrade consumer's data plan without customer consent. If AT&T refuses to follow their own contracts, why should consumers have to follow theirs?
There is an easy solution to all of these problems. Consumers must buy the phone unlocked, then choose carriers based on the carrier monthly plans. Carrier plans must be like Netflix's monthly plans, where it is super easy to cancel at any time. Only then will phones and carriers face genuine capitalism. This healthy competition will make phones and carriers better for every American.
