More people are tearing up the traditional two-year cell phone-and-service contract and opting to go with no-contract options instead. It's a trend that started when T-Mobile shook up the industry last year, joining upstart prepaid and no-contract carriers by dropping service agreements from its lineup. AT&T and Verizon now also offer contract-free service plans alongside those that come with a two-year commitment.
But can you really save money with no-contract service? Our new study of 78 plan combinations offered by 12 carriers found that in some cases you can.
Unfortunately, the business of shopping for the best deal has become a lot more complicated. It can be difficult to get the different types of service plans to line up for easy comparisons. That’s because no-contract deals, which usually have lower monthly service charges than traditional plans, can also come with hefty price tags for their phones. Meanwhile, major carriers hide handset costs in the overall monthly fee on their traditional contract plans.
Adding to the confusion, most carriers now let no-contract customers pay for a new phone in installments, while some require that you pay full price up front. Most carriers also let you take the phone you already own over to their network—if it’s compatible with their system’s technology.
Price isn't everything when shopping for cellular service. Read our Cell phone & service buying guide, which includes Consumer Reports' latest exclusive satisfaction ratings of 21 U.S. and Canadian cellular carrier brands.
To sort all this out, you need a new cellular shopping strategy, and we developed one to help you find the best values that combine low price with high satisfaction.
We gathered up all that messy pricing data and differing details about the terms of the various plans and levels of service available from major contract, no-contract, and prepaid carriers. To allow you to also make your decision based on overall satisfaction with service, we confined our comparison to the cellular service providers rated on that score by the Consumer Reports National Research Center, based on its survey last year of 58,399 ConsumerReports.org subscribers with cell-phone service in September, 2013.
Finally, we created three model customer households—an individual user who consumed about average levels of 600 voice minutes, 600 text messages, and 2GB of data per month; a couple using only 400 minutes, 200 texts, and 1GB of data per month between them, and a family of four devouring a total of 1,800 minutes, 7,600 texts, and 8GB of data each month.
We assumed the Apple iPhone 5 or 5c was the handset of choice for our example consumers, and we calculated the cost of phone, service, and any start-up costs over two years, so that traditional two-year contract plans could be compared on a level playing field with no-contract and prepaid plans.
Here's what we found. You can save a bundle by taking your own phone to a new carrier with a no-contract plan, instead of choosing a traditional two year contract plan that comes with new phones. On average, the two-year savings on the cost of the phone plus the service were about $770 for our example individual user, about $1,160 for our low-use couple, and almost $2,000 for our family of four.
To get those savings, your phone must work with the new network. You’ll need to switch out your phone’s SIM card (a small expense) for a new one. Top-rated carriers that let you bring your own phone include Consumer Cellular, Net10, and Straight Talk; AT&T is noted for reliable 4G service.
Average 2-year cost of service & iPhone(s) 5 or 5c
|Terms of cellular service & phone purchase||Average-use individual||Low-use couple||High-use family of four|
|No-contract service, bring your own phone||$1,322||$1,986||$4,542|
|No-contract service, pay full price up-front for new phone||1,912||3,323||7,207|
|2-year contract, new phone included||2,090||3,148||6,538|
|No-contract service, new phone paid for in installments||2,149||3,183||6,812|
Most carriers offer the bring-your-own phone option, but all phones don’t work with every network. If that’s the case for your preferred new carrier, you’ll need to consider the cost of buying a new handset using the variety of purchase options available.
To properly compare carrier costs, determine how much voice, text, and data you use each month and then shop around among your preferred carriers for the plan that meets your needs. Then multiply the monthly service charges and applicable smart-phone installment payments by 24 months. Don't forget to add in any up-front phone payments and activation or other start-up fees. Use your chosen carriers’ online shopping carts to precisely calculate the monthly costs of each.
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