Why do cel phone companies require a two year contract and a credit check, but I can buy telephone service or ISP service month to month with no contract and no credit check? I know that most cel phone companies also offer prepaid wireless plans, but if that is true, why don’t phone companies and ISP offer two year contracts at a reduced rate? I just don’t understand how the two year contract became a standard in one industry and not another, when they are substantially similar.
In the US the two year contract generally comes with a heavily subsidized cell phone. ISPs generally do not.
But ISP’s offer cable and DSL modems with signup. Those cost as much as entry level phones.
There is a substantial amount of fraud on cell phones compared to conventional phone service or ISP service. That may be why the credit check is required. Most often the fraud is service theft (cloned phones, etc.) rather than nonpayment of a legit account, but that may have something to do with it. Earlier in the industry, pricing was primarily by minute (now you get huge amounts of minutes with modest monthly fees) and I imagine a lot of people got in over their heads when they discovered that chatting with their friends all day long to tell them about every new song they heard or TV show they saw cost them $1000 last month. Not an issue with ISPs who moved to flat fees very quickly, or long distance, where people historically were much more conscious of the time they use since a long distance call tends to be more deliberate (not as true with current LD rates).
Cell phone companies give deep discounts on the equipment as part of the tradeoff in a long-term contract. The equipment is probably a lot more expensive than most people realize. No equipment to buy from your ISP or conventional phone company.
Historically there has been a huge amount of customer churn in the cell phone business, and portable numbers probably make it even higher. This is probably not as true for ISPs, although similar churn has existed for long distance phone service since deregulation. So I don’t know why long distance companies haven’t done the same thing.
Although I worked in cell phone billing for a couple of years I am not an expert at cell phone marketing, price models, etc., so this is somewhat speculation on my part.
You generally have to give back the modems when you close out the service. In some places you can get DSL or cable internet for a little cheaper if you supply your own modem.
I have Cox cable broadband and they do not include a cable modem. They can sell you one or rent for $15 a month. (I bought one from a third party.)
The cell phone handsets are fairly expensive. They are easy to lose, damage, and become obsolete as quickly (if not more so) as computers.
Thus they represent a financial barrier to entry for new customers.
So the service providers offer them at a heavy discount, effectivly spreading this expense over the term of a contract. For example, a $300 list priced handset may be provided at an initial payment of 0 - $50. In order to recover this subsidy, the provider requires a two year commitment to purchase service.
The landline buisness model developed under the old MaBell. The phone company owned the telephone set, and you rented it. The technology was very stable, and it was hard to lose something that had a cord attaching it to the wall, and doesn’t work if you take it out of your house. The phones were made to be nearly indestructable. Occasionally the failed, or got broken, but it really wasn’t a big part of the operating expense.
Eventually landline phones became so cheap, it made more sense for consumers to buy them outright. Cell phones may someday get to that point. Remember, that the prices the cell providers advertise them at are a small fraction of what they real “price” is.
Or in the case of COX apperntly a lot cheaper if you supply your own modem.
I think it’s a perculiarly American situation in which the servic provider is the main source of cell phones for consumers. In Australia, the custom seems to be that the cell phone is sold seperately from the service plan. You buy a phone from a cell phone retailer for the full list price.
How much is the typical cel phone in Oz?
They range from around $100 to $1000 AUD or about $70 to $700 USD. The $100 model is your basic nokia 3210 or something similar. The $1000 ones are the flashy gizmos with bluetooth and gps and all that jazz.
This page has the RRP for nearly every phone sold in Australia. Prices in stores should be about 80% of that.
So if we compare what Verizon (US) charges for phones with a 2 year contract, we can get some idea of the amount they are subsidizing. According that site, phones range from $30 to $600, so at the low end they are subsidizing $40, up to $400 at the high end. I can see the need for credit checks and contracts at the $400 level, but for $40? I would rather just pay the $70 than get roped into a 2 year contract.
I had to get a credit check before getting a landline. AFAK, I have always had to each time I moved.
Keep in mind that electronics in Australia is typically more expensive than in the US since we have a smaller population and are further away from everywhere else. For those prices, it doesn’t look like the phones are subsidied at all. Your paying full price and being locked into a contract.
I thought this was the case as well. I used to sell pagers (which I know are much simpler than phones) in my retail store and offer service for them. I was way down on the bottom of the ladder, but I was repeatedly told that it would be worth it just to give the pagers to people in order to get the service contract. I always assumed that cell phones operated on a similar model.
-rainy
Right. And with ISPs you can get unlimited 24/7 service for a rather modest monthly rate. With cell phones you can theoretically run up obscene bills with calls to Zambia, etc. Hence the logic behind a credit check with cell phones.
Note that with the existence of prepaid plans, those can be considered “basic” cell phone service, and contract plans “premium” service. Contract plans can be considered “premium” in that with them you can get very low average per minute rates if you use your cell phone a lot. (Figure out the per minute cost with postpaid plans if you average 2 hours a day of calls during the “free night and weekend” hours.)
So if I host a website on my personal user space that becomes wildly popular, and my bandwidth suddenly increases by a factor of a thousand, aren’t ISP’s in the same position? They can demand a higher fee or cut off my service. Nobody has a gun to the heads of either one, forcing them to provide service they don’t want to, yet one uses the contract model, and the other doesn’t.
Exactly. So why don’t landline telco’s offer “premium” rates with lower monthly prices? For that matter, why don’t traditional telcos charge by the minute for local service? Why is that better for cel phones, but not for landlines? I am reminded of the old days when internet service was by the minute, but it was abandoned under market pressure. Might that happen in cel phone service in the future?
Could be worse. We’ve got a **three ** year contract for our home security system. There was no up-front cost for them as the system was already installed and presumably paid for by the previous owner of the house.
What’s the fraud potential here? Are they worried that I’ll try to use the thing to report too many burglaries per month? That I’ll steal the already-purchased equipment?
Do phone companies actually ever require a contract?
I’ve never heard of any company refusing to issue you month-to-month service. Of course then you have to shell out the $800 MSRP on that phone you desperately need because it makes coffee, takes videos and babysits the kids :rolleyes:
If you already have an unlocked phone compatible with their network the company should let you into a month-to-month plan. It might be a bit more pricey, but that’s expected, since you usually DO get a discount for buying in bulk(think of a contract as buying up months of service in advance)