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Why Subsidized Phones Are a Rip-Off

Why Subsidized Phones Are a Rip-Off

The big American telecos have always been pretty high up on my list of evil corporations, so I wasn't exactly surprised to hear that Verizon – perhaps the worst offender of them all – is making the consumer bear the brunt of another frivolous fee. From now on Verizon subscribers will have to pay a $30 fee every time they upgrade their phones. While we've all gotten used to carriers inventing bogus fees literally out of thin air, it is important to take a step back and understand exactly how Verizon, AT&T and the rest are shamelessly ripping us off with every monthly statement.

For years now, wireless providers have been luring consumers in with top-quality phones at reduced prices in exchange for a two-year commitment. You get to keep the phone, while the carrier has the pleasure of charging you a hefty monthly sum for the service. Seems like a fair enough deal, right? At least, that's what the carriers would like to have you believe. The reality, however, is much more sketchy and sneaky as is often the case with companies that have a quasi-monopoly over any given product or service.

If you actually sit down and do the math, you end up paying the carrier back way more than just the price of the phone. But that's not the story the carriers are selling to the media. In fact, based on the decrease in profits carriers are complaining about how much money they are losing on subsidized phones. So in an attempt to allegedly compensate for providing us with phones at subsidized prices, US carriers have systematically introduced a so-called “upgrade fee” on top of all the existing charges lurking underneath the surface of your cell phone bill.

What may look like a relatively small fee will actually bring Verizon an extra $1 billion a year in terms of profit. And now that they've jumped on the “upgrade fee” bandwagon consumers are left with no choice but to shake their fists at the telcos and shell out an extra $30.

And get this, according to Verizon, this new fee is meant to “help continue to provide customers with the level of service and support they have come to expect”. If by that they mean that we've all become used to the fact that Verizon is one money-thirsty leech of a company with terrible customer service – then, yes, we agree.

As Americans we've become addicted to two-year contracts and subsidized phones, but my recommendation to you would be to use your Internet browsing skills and buy your Android phones at full price. Thankfully, there are plenty of good deals to be had on eBay and online discount stores. Don't let the Big Three bleed you to death with fees, fines and small print. Just keep one thing in mind: with these telecos it's always the consumer that gets the short end of the stick.

Source: Wireless Week

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  • I always thought that the US has a stronger reputation for consumers demanding better deals and more competitiveness.

    I periodically hear of how much cheaper items are in the US, especially electronic goods. Not the case for mobiles or contracts. It appears.

  • I agree with Sean. Here in Europe its MUCH better to buy the device straight out vs cash. As I lived in the US until I was 21, I can confidently say that the system works much better over here.

  • Thanks for your input, Sean. The way things are done in the UK seems to make a lot more sense to me. I think it is more than reasonable to adjust how much you pay based on whether you have a subsidized phone or not. I think it's always important to keep things in perspective by comparing the way carriers handle this issue in different countries. Just because we're used to things being a certain way in the US, doesn't mean it's the best solution.

  • I'm in the UK were the situation is different. The providers have acknowledged that a chunk of a standard contract is to subsidise the cost of the handset. As a result. They offer more competitive sim only contracts.

    I'm with Orange and was paying £27/month for 300 minutes, 3000 texts and 0.5G of data. As my contract came up for renewal I got a HTC Sensation on ebay for £180 and moved my contract to sim only. My minutes dropped to 200 but the cost dropped to £10/month! The saving will have paid for the phone in 11 months and then I'm saving towards another handset.

    From my experience it's worth buying your own handset in the UK.

    Orange offered me a new Sensation XE if I paid something like £130 up front and £27/month for 2 years. It just didn't add up.

  • red Apr 14, 2012 Link to comment

    For me, I'd rather buy an unbranded /unlocked phone, but those are getting tough to find the likable kinds. This Galaxy S 4G is the first I've subsidized in over 6 years. I wish I could have found an unbranded Android I liked. The most obvious thing I've noticed from unbranded phones is lots of bloatware. I'll be looking for unbranded phones from now on.

  • How have they "invented bogus fees literally out of thin air"? That would mean that they have somehow managed to convert the nitrogen, oxygen, CO2, etc. into fees! How did they do it?? Or perhaps it just means that the professional writer that wrote this piece doesn't know the definition of the word 'literally'.

    Sorry to be off topic and perhaps even a little petty. It disappoints me to see professional writing standards go a little further down the toilet every year.

    I feel better now. :-p

  • What you pay for the monthly service is not part of the equation, it would be the same no matter if you provided the equipment yourself or signed the contract and got the subsidized handset.

    At&t will gladly let you start new service (I don't know about other carriers) with NO CONTRACT if you provide your own equipment, you are then month to month and can cancel at any time. Either way though you ARE required to have a voice plan AND a data plan if you are using a smartphone.

    I'm certainly not saying that it is a BAD idea to skip the contract and buy your equipment outright, but I don't think for most people it's going to save them anything, quite the opposite.

  • @C Brown: Good point..but doesn't that also depend on which plan your using? I mean for the minimum plan with At&t, you ll pay a minimum of 60 dollars a month if you want data (only 300mb) and unlimited to mobile phones only. Thats 1440 dollars over 2 years for a BASIC contract. Doesn't that somehow influence the costs?

  • I'm not quite sure how you figure how we're getting "ripped off". Lets do the math.

    If I buy a new Galaxy S2 with a new 2 year contract from at&t it costs me $99.99 plus a $36 upgrade fee. That's a total of $135.99. Lets say I cancel that contract on day 31 and pay a disconnect fee, with at&t that's $350 for a smart phone. My total expenditure is $485.99.

    If I buy that same phone outright from ebay the average cost seems to be about $430 for a NEW handset.

    Under the best possible scenario I saved almost $300 by signing that contract and paying the upgrade fee.

    Even in the worst possible scenario I only spent maybe $50 less on that handset by purchasing that handset outright...and that's ONLY if I cancel the contract and pay the TOTAL starting termination fee (that does decrease by $10 a month for every month of the contract I complete).

    Would I rather see the carriers just increase the price of the phone with a contract by $30-$40 instead of inventing a fee? Sure, but I have no influence over that.

  • You can turn off the automatic notifications by going into the settings and turning them off.

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