More wireless customers are saying "yes" to no-contrac
Source: Becky Mickel

Hold the phone: Times are changing again in the world of smartphones.

Yesterday's prepaid go-phone is today's no-contract smartphone.

The no-contract service advertised in many circulars offers unlimited data, unlimited text messaging and unlimited talk for as low as $50 per month.

No contract; no worries.

Nicole Ward, a former Verizon Wireless customer, switched to Sprint Nextel's Boost Mobile six months ago because she was dissatisfied with Verizon's recurring user fees, poor customer service and contract plans.

Ward, a grant coordinator for Radford University, then switched again to Sprint's Virgin Mobile because she preferred the smartphone selection. Now, Ward, her husband and two sons all have no-contract phones.

According to Ward, her family pays $185 per month for three prepaid smartphones and one standard cellphone. The monthly cost is only $15 less than Ward's original plan at Verizon, but her family has unlimited text messaging, unlimited data and more minutes -- features that she said Verizon didn't offer at an affordable price.

"I was very frustrated with Verizon. They do offer good coverage, but the customer service is terrible," Ward said. "They kept adding little fees here and there, and I decided it wasn't worth it."

Ward is joining a trend: An increasing number of wireless customers are opting for no-contract services instead of two-year contracts. Ward is also not the stereotypical "pay-as-you-go" customer, who may be denied a cellphone contract for lack of good credit. She, instead, chose to go no-contract because she gets more bang for her buck.

In 2010, more than 21 percent of cellphone users in the United States had a no-contract cellphone, said Amy Storey, a spokeswoman at CTIAThe Wireless Association, a nonprofit membership organization that represents the wireless communications industry. That percentage jumped from 2009, when 18.2 percent of cellphone users had a no-contract phone. Storey predicts that the percentage will keep increasing.

Storey described the ideal no-contract user as someone who wants a flexible monthly cellphone plan and is an active data user.


Many wireless providers now offer more no-contract options and a larger cellphone selection. For example, AT&T embraced no-contract smartphones about three months ago with the release of Android smartphones, said Tom Ricotta, an area retail sales manager.

In just three months, AT&T reported a net increase of 137,000 no-contract subscribers, according to the company's 2011 second-quarter report released July 21. Moreover, since June 2010, AT&T's no-contract revenues have increased by 14.8 percent, even though AT&T has offered a prepaid (no-contract) product since its service began in Virginia in 2003.

And there could be more AT&T options on the way. According to Chris Hillabrant, T-Mobile USA vice president and general manager of the mid-Atlantic region, AT&T and T-Mobile are in the midst of a merger that could result in cheaper no-contract offers on the GSM network.

GSM vs. CDMA

AT&T and T-Mobile function on the GSM coverage tower. Research shows that GSM offers better worldwide wireless, while CDMA is the dominant network in the U.S.

Contract and no-contract customers with Verizon, Sprint, Ntelos and U.S. Cellular all function on the CDMA coverage tower, meaning wireless service for these companies is about the same, according to Mike Menace, director of public relations at Ntelos.

It's important to know which coverage tower your wireless carrier uses because most cellular devices only function on one network. While almost all no-contract providers require customers to purchase a cellphone before monthly service begins, in some cases, customers can activate their current phones. For example, T-Mobile allows contract and no-contract customers to activate AT&T's iPhone because both companies use the GSM network.

For now, that's the only way AT&T iPhone users can get no-contract service; otherwise, customers who want iPhones have to sign two-year contracts with AT&T or Verizon, the only carriers that sell the phone.

Product comparison

Even if you identify yourself as a tech junkie who craves the latest product (such as the iPhone), a no-contract plan can still suit your lifestyle. A two-year contract can be a nuisance for customers who want to upgrade their phones before their contracts are up for renewal.

No-contract customers are not charged with cancellation or activation fees when they upgrade from an older smartphone to a newer model. With a no-contract service, customers can upgrade at any time but they are generally required to pay a phone's full retail price.

This requirement may discourage customers from opting for a no-contract service because they are accustomed to buying new devices at subsidized prices. For example, the Droid 3 by Motorola sells for $199.99 with a two-year contract agreement at Verizon, although its full retail price is marked at $459.99.

Hillabrant said that customers may be attracted to the classic price plan of a low upfront cost, but then they are "trapped with two years" of monthly charges that are higher than most no-contract services with similar features.

Even so, many no-contract carriers, which operate within a larger parent company, such as Sprint's Boost Mobile and Virgin Mobile, and T-Mobile's Monthly 4G, can offer no-contract phones at a discounted price.

For example, Virgin Mobile, Boost Mobile and Monthly 4G price the full retail value of a BlackBerry curve model 8530 at less than $190 for no-contract customers. Verizon and Ntelos sell the same model to no-contract customers for $359.99, and AT&T and U.S. Cellular don't offer any BlackBerry models to its no-contract market.

No-contract features

Ricotta said that the benefit of no contract is that customers can grow with the plan, adjusting the amount of minutes, text messages and data on a monthly basis -- essentially avoiding overages.

"There are customers that must insist on a budget, and we can't present them with overcharges," Ricotta said. "They control it now."

However, not all wireless providers are expanding their no-contract service. According to Melanie Ortel, Verizon associate director of public relations, only 5 percent of the customer base at Verizon is prepaid, and its focus will continue to remain very heavily on the retail contract market.

Many contract customers believe that a contract provides protection and rewards. However, several no-contract carriers reward customer loyalty, even though it functions as a monthly service.

For example, in October 2010, Boost Mobile launched "Monthly Unlimited with Shrinkage," the first unlimited no-contract offer that "shrinks" monthly payments. Customers who pay their monthly bill on time for six months reduce every monthly bill that follows by $5. Customers can reduce their monthly bills by up to $15 in just 18 months -- and that reduced price lasts for as long as they stay with Boost Mobile.

The no-contract smartphone selection at Ntelos, Frawg Wireless, is identical to its contract smartphone selection, and two months ago, T-Mobile made its high-speed 4G network available to no-contract customers.

Moreover, representatives at each wireless carrier guaranteed that the data speed for no-contract customers is as fast as it is for contract customers, meaning that no-contract customers can check their email, surf the Web, access Facebook and watch movies on Netflix as fast as their contract friends.

The question now is how many customers will decide, as Ward did, that no-contract smartphones are worth it.