Questions to Carriers : Why are contracts so expensive?

Understanding the nuances of your mobile “plan”, “pack”, “bundle” or whatever other cute all-in-one name your carrier deems fit, is a tedious undertaking regardless of your locale. As Americans, we typically find ourselves with two-year contracts which lock us into high prices. Conversely, most mobile users around the world have a different headache trying to avoid overages on their pay-as-you-go SIM card plans.

There is no doubt that contract plans are more expensive. Take a look at the graph we created to give you a better idea of the disproportion. Each carrier has similar prepaid and contract options. For these five carriers we compared plans with 2GB data and unlimited talk/text.

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So why would anyone go for a contract plan if it’s more expensive? There are a few perks, but the real thing to understand is that contract plans are actually “new device” financing plans in disguise.

The Pros:

  • The latest devices offered at an up-front discount, paid in installments

  • Discounted device upgrades, though often with strings attached

  • Wider range of additional services, like international roaming

The Cons:

  • Bringing your own device doesn’t change the price of the plan, so you’re paying for a device discount you never received

  • Two-year commitment or pay hefty cancellation fees

  • Prices for data/talk/text change, but contracts lock in high rates

  • Mobile devices may be arbitrarily “locked” to the carrier, making it harder to switch

  • Want a new device? Sign a new contract and start the process all over again

Prepaid or pay-as-you-go plans have their pros and cons as well, but with the ability to purchase your mobile device outside of your carrier, consumers have the power to recycle old devices or find cheaper options.

The rub with prepaid plans you ask? There are much higher overage fees when you opt for a pay-as-you-go SIM plan, so make sure you really understand your usage.

Still don’t know which is right for you? Stay tuned to Questions to Carriers, as we continue to breakdown mobile plans. Up next we will take a look at learning how to monitor your usage, so you can switch to a pay-as-you-go plan!