What don't I understand about cheap unlimited plans?

September 29, 2011 7:18 AM

If you go with the no-contract/prepaid phone service, unlimited talk-text-data is about $50/mo across the board. Sign a 2-year contract? Unlimited service is around $100/mo. What am I missing -- I know there's a free phone involved in the contract plan, but that can't account for a $1200 difference in service over a two-year plan.

Wifey and I are disappointed in AT&T after Alltel was bought; it costs us a lot more, we don't have a lot of minutes, and signal is poor. So, we're shopping around, but we're confused by this wierdness in pricing. It even exists within AT&T; our options in signing a new 2-year contract with AT&T are expensive -- but AT&T's prepaid plans are half the price while being 'unlimited'. Virgin Mobile, Straight Talk, AT&T prepaid, etc., all hit that $50/mo (or so) unlimited plan mark; everybody else's contract-based pricing is nearly twice that. What's the catch?

posted by AzraelBrown to Technology (23 answers total)

but that can't account for a $1200 difference in service over a two-year plan.

First off, make sure you're comparing apples to apples - "unlimited data" can mean a lot of different things. But in general, contract plans that include a subsidized phone have always been, in a word, a rip-off.
posted by muddgirl at 7:28 AM on September 29, 2011

Best answer: Also, for smaller companies like Virgin Mobile, Boost, Cricket, etc. - they generally lease bandwidth from one of the Big 4 networks, and they don't lease enough to cover their entire demand. So you may have "unlimited data," but your connection will be very hit-or-miss. That's how they can afford to offer much lower prices.

I was a mostly-happy customer with a Virgin Mobile month-to-month plan, but eventually the missed calls and lack of data connection got to me and I switched to a more-expensive T-Mobile "value plan" which includes a 2-year contract but does not subsidize a phone.
posted by muddgirl at 7:31 AM on September 29, 2011 [2 favorites]

Have you compared roaming charges on all the contracts?
posted by buggzzee23 at 7:31 AM on September 29, 2011

but that can't account for a $1200 difference in service over a two-year plan.

It pretty much does, in my experience. Contracts are money makers. They make money on the phones and any early termination fees. Plus you're "stuck" with them meaning they can feed you newer phones or other bells and whistles that make them more money.

The lure of the "free" phone seems like a better deal, after all.. the phone.. this brand new awesome piece of electrical excellence is free! It's a lot harder on your pocket book to drop $300-$500 on a phone.

Not too many people think to do out the math. And the phone companies know it.
posted by royalsong at 7:32 AM on September 29, 2011 [2 favorites]

It's exactly what you've figured out: you spend a few hundred on a phone versus the company pulling $1k from you over a couple years. Contracts are enormously profitable. Prepaid bring-your-phone generally have a few less bells and whistles for product differentiation reasons, but when you compare raw resource usage (minutes, megabyte, etc.) you realize just how much money they're making off contract signers.

My wife and I switched to prepaid T-Mobile years ago and haven't a single complaint. It's cheaper in the long run and you get identical coverage. What's not to like?
posted by introp at 7:52 AM on September 29, 2011 [1 favorite]

Don't forget about how many people have family plans. My phone with Verizon costs $50 a month and includes minutes, texting and data.

Also I love Verizon because I get service when nobody else does and there's no weird delays when I text. I have friends with cheap plans who sometimes don't get a text for hours. That kind of crappy service would not be worth any savings to me.
posted by DoubleLune at 7:52 AM on September 29, 2011 [1 favorite]

I've been incredibly happy with T-Mobile prepaid for a couple years. The main difference is the lack of free phone, but there's a little difference in customer support as well -- I get shunted to "prepaid customer service" where it can be harder to get things done.
posted by freshwater at 7:59 AM on September 29, 2011

Check out this post at get rich slowly about how buying the phone with no contract was $60 cheaper the first year, and saved the author $30/month for the 2nd. Most people don't do the math.
posted by fings at 8:04 AM on September 29, 2011

The subsidy is worth about $450 (unlocked iPhone is $650, subsidized one is $200). And this is more important than you think: $100-200 for a phone is a lot more doable for most people than $500-600, even though the upfront phone would save them money.

Beyond that, a lot of this is that the prepaid carriers are trying to disrupt the existing market, especially Virgin Mobile. I think they were the first to realize that they could sell an unlimited text + data + limited minutes for $30 or so that would really appeal to the high-school / college crowd that uses thousands of texts each month. The additional texts wouldn't cost them much, and their average bill per month would go up $5 or $10, and they would be a viable alternative to AT&T or whomever who was charging $20 for unlimited texts. So then the other pre-paid carriers matched it (although sometimes not really, like AT&T has unlimited data but only on non smartphones so that is worth $0.)
posted by smackfu at 8:12 AM on September 29, 2011

We have all 4 family members on Virgin Mobile. The web connection can be a little wonky at peak times (like early evening Fridays) but otherwise we have no complaints.
posted by COD at 9:15 AM on September 29, 2011

Well, one thing about AT&T in particular is that AT&T's prepaid plan in the US ("GoPhone") specifically excludes iPhones, even legitimately unlocked ones. Not that they tell you this until _after_ you buy the data package, despite the fact that you told them you have an unlocked iPhone and are holding it in your hand while you buy the SIM, and then they say, they can't reverse that charge in the store, but you can try calling customer service and seeing if they will credit the money to your account for buying more voice minutes/texts, and then you have to weigh whether the hours of frustration of calling AT&T customer service * probability of success is worth more than the cost of the data package, and you give up, and let AT&T basically rob you a little. God, I hate AT&T.

There are all sorts of other little scams on the prepaid plans though. Like, with AT&T, if you buy GoPhone, and you buy a text messaging add-on package, it expires, regardless of whether or not the allowance is used up. When it expires, it starts charging you piratical rates for texts, like $.20 /each or something, and that includes incoming texts. So you go to sleep, plan expires, you get a bunch of texts from your friends, that totally depletes all the credit on your account. Or you have a prepaid plan with internet that has a data allowance, but when it runs out, you get no notification and it starts billing your main balance at the per-KB data allowance, so you load google maps ONCE and it burns through a few dollars of credit and wipes out your whole balance (Claro), or you have a time-based internet plan, and each internet package lasts say 2 days, and when it runs out, the same thing happens (MoviStar).

Basically, the postpaid plans include two things: phone subsidies and freedom from overlaying an annoying economic decision on every freaking thing you do with your phone. That said, I have been on prepaid plans for the last 18 months or so for a variety of reasons.

The above AT&T story took place in late June/Early July 2011 in the New York City area.
posted by jeb at 9:20 AM on September 29, 2011

Unless I'm reading the contract wrong (and I haven't jumped yet), T-Mobile's current plans in my local T-Mobile store seem to be their month-to-month price plus, explicitly, an interest-free loan to buy the phone over the length of the contract.

However, as muddgirl pointed out, as soon as you get out of Verizon/AT&T/T-Mobile/Sprint everyone else is buying coverage from one of those 4, and sometimes only fractional coverage. It appears that Net10, at least, is buying voice from AT&T but smart phone plans from T-Mobile, so it may even be the case that your coverage from the prepaid provider will vary wildly depending on which phone you buy from them.
posted by straw at 9:43 AM on September 29, 2011

T-Mobile also has a post-paid, no contract option called "Even More Plus" which is $60. Unlimited text and data, 400-something minutes. There's no phone subsidy but you also aren't restricted to a bunch of crappy phones that are barely able to use data anyway.

They also used to let you pay for a phone in $20/month increments, interest-free, but I don't know if that's still an option.
posted by The Lamplighter at 9:43 AM on September 29, 2011

T-Mobile's current plans in my local T-Mobile store seem to be their month-to-month price plus, explicitly, an interest-free loan to buy the phone over the length of the contract.

I think they actually have several different levels:

(1) "Classic" contract - from what I can tell, in-store employees are heavily marketing against this plan,
(2a) "Value" contract, for people who already own a SIM-card phone (employees have been telling people to go out and get an older-generation, new phone from Walmart or eBay).
(2b) "Value + loan" contract - same as #2a, but if you like one of the new phones in the store, they will give you a loan that's some downpayment + $10. I think this is often still $5 per month cheaper than the classic plan.
(3) Month-to-month, which I did not investigate (because it seemed like a similar price, and with the uncertainty about the merger with AT&T, it seemed smarter to lock in one rate now).
(4) Pre-paid.

Source: The manager of the T-Mobile store where I was camped out for hours talking customer service into fixing the account activation that they had seriously messed up, twice.
posted by muddgirl at 9:58 AM on September 29, 2011

Well, one thing about AT&T in particular is that AT&T's prepaid plan in the US ("GoPhone") specifically excludes iPhones, even legitimately unlocked ones.

A friend of mine is presently using his unlocked iPhone 3GS with a GoPhone prepaid SIM, voice and data. Has been for several months. His phone is jailbroken and probably unlocked.

I don't believe he went to an AT&T store to set it up. I think he just cancelled his AT&T service, then got the GoPhone SIM at Target.
posted by chazlarson at 10:07 AM on September 29, 2011

If the T-Mobile/AT&T merger does happen, I don't think there would be any immediate (less than one year) major changes to pricing, etc.
posted by The Lamplighter at 10:30 AM on September 29, 2011

I switched to Virgin Mobile a few years ago and have been quite happy. There are a few drawbacks, but the amount of money I save along with not having late fees ever really make up for it. And while I have no contract, I am locked into a consistent rate unless I change my plan.
posted by mandymanwasregistered at 10:31 AM on September 29, 2011 [2 favorites]

for what it's worth, I have the exact plan that Lamplighter and fings's article mentions.

$60 plan
- 400 Minutes (The lowest they had at the time. I don't talk on my phone, ever. I might use 50 minutes a month)
- Unlimited Data (if it's limited in some way I've never encountered it through moderate use)
- Unlimited Text

$400 T-Mobile G1
- Paid off in increments of $20/month. No interest.
- Warrenty at $7/month*

So for the first two years, my payments were around $90 and they're down to $70 now that the phone is paid off. What was cool is that I got $100 as a gift and was able to apply that to the balance of my phone. So that brought my bill down that much sooner.

* I've replaced my phone (free of charge) three times due to defects. T-mobile has been helpful in sending me a replacement each time. I originally had some trouble porting my number from the little hole in the wall company that had it to t-mobile, but I never really blamed t-mobile for that. I have no problems with their customer service at all.

The only reason I haven't gotten a new phone is because I'm worried about the t-mobile+at&t merger. I was once a at&t customer and I will not go back.
posted by royalsong at 10:31 AM on September 29, 2011

Best answer: Roaming can definitely be a major difference.

For instance, I was recently looking at Virgin Mobile. Virgin uses the Sprint 3g network; however, it does not have access to Sprint's various roaming agreements. So, if you're in a place without sprint native coverage - a Sprint phone might continue to work just fine on roaming, while the same phone on Virgin will simply say 'no signal.'
posted by kickingtheground at 11:15 AM on September 29, 2011

Another big difference (that doesn't apply to unlimited voice plans, but they aren't all unlimited), is that a contract plan will generally have free nights and weekends and free calls to other people on the same provider. A prepaid plan like Virgin Mobile charges you for every minute. This effectively means that I can use the basic 450 minute plan on AT&T and have plenty left, but I would easily exceed the basic 300 minute plan on Virgin. If you are comparing unlimited to unlimited, less meaningful, but I don't need an unlimited plan due to this.
posted by smackfu at 12:02 PM on September 29, 2011

I think the prepaid plans are great if you don't talk much and can live without your phone being constantly up and perfect. If either of those things aren't true, the balance shifts pretty dramatically.

Since I never talk on my phone (I doubt I get to 25 minutes on average, and I think I peaked at 127 minutes once) and since I'm still relatively new to the phone/data concept and have not cultivated habits of needing to be up all the time, I have never bothered with a contract phone.

I'm on my second year with my Blackberry on Virgin Mobile with the $35 smartphone/unlimited data/300 minute plan, and now that they have other smart phones I will buy another phone on the day my spreadsheet says I've dropped below the actual cost of the contract plans on offer when I first bought the Blackberry and below my target cost of $50/month (over the life of the phone.) Since the phone cost $300, that moment will come in I think January (going off of memory because I pride myself on not doing extensive research into my own past just to answer most AskMe questions.) Before this I was on a plain Virgin Mobile or Tracfone device off and on for years. And by that I mean sometimes I just let the thing expire for a few months now and again. Really, this not caring so much has made everything much more possible.

I incidentally love spreadsheets. Most people prefer 99.99% uptime and streaming movies on their phone and not worrying too much about math. AT&T/Sprint/etc. make a lot of money from selling that ideal and Virgin Mobile makes a lot from the spreadsheet/bad credit/not caring that much crowd.
posted by SMPA at 1:30 PM on September 29, 2011

Response by poster: Thanks all! You put me on the path to the major discrepancy between the prepaid plans and the contract ones. Overwhemingly, the prepaid plans had much smaller maps than the contract plans -- even when gauging Sprint's self-owned pay-as-you-go plan versus the full Sprint plans, the non-contract Sprint plan has less coverage. If I stuck around town and used the phone rarely, as my daughter does with her plan, I probably wouldn't notice a difference -- but I regularly drive across North Dakota, which has acceptable coverage with everybody's contract plans, but has nearly no service for 90% of the state according to prepaid/noncontract plans. So, I guess I'm stuck signing a contract -- I'll just have a much thinner margin to work with versus cutting my bill in half.
posted by AzraelBrown at 8:31 AM on September 30, 2011

If you're okay with not getting a phone subsidy, think about going with t-mobile's non-contract plan. You will be able to roam as much as any other normal T-Mobile customer.
posted by The Lamplighter at 10:40 AM on September 30, 2011