The two-year wireless contract is officially dead.
On Wednesday, AT&T became the last major carrier to announce it's ending two-year contracts and will instead shift to monthly plans, just like Verizon, Sprint, and T-Mobile have chosen to do in recent years. (Don't worry. If you already have a two-year contract and want to keep it, you can.)
This is good news for just about every wireless customer in the US.
It means you're no longer tied to the same phone for two years. If you get sick of your carrier's service, you can easily switch to another one without paying a penalty. In the longer term, it means wireless carriers will have to work harder to keep your business by offering competitive pricing and high-quality service.
Now for the caveats.
This isn't going to save you any money. And it's going to change how you're used to paying for your smartphone.
Non-contract plans may appear cheaper than before, but that's only because they no longer include the baked-in cost that subsidized your smartphone. Now you pay for your phone and cell service separately.
You know how Apple always says the iPhone starts at just $199? That's only sort of true. The iPhone really starts at $649. But when you sign up for a two-year contract with your carrier, the carrier eats that extra $450 at first. You end up paying it back to the carrier over two years with that extra baked-in cost I mentioned above.
That's why carriers are so strict about how often they let you upgrade your phone. They need to make their money back before they let you buy a new one.
REUTERS/Yuya ShinoWith a no-contract plan, you pay for the phone separately — either in monthly installments (about $25 or $30 per month for the iPhone) or all up front. If you choose to pay off your phone a little at a time month-to-month, the carrier won't let you leave until you've fully paid off the phone. At the end of the day, that extra $25 or so on top of your service bill is just about the same cost you're used to paying each month.
The long and short is this: the number on your bill isn't likely to change very much, despite this bigger change to how contracts work.
This change means carriers are much more transparent about what you're paying for. And if you want to pay the full cost of your phone up front or use an "unlocked" phone — a phone that can be used on any network — you have the freedom to switch carriers whenever you want just by popping in a new SIM card.
This may seem like a new concept to US phone users, but it's how most major wireless carriers operate around the world. International carriers sell you a phone at full cost, and they only charge you for the wireless service. Americans have been tricked over the years by buying subsidized smartphones.
It's a subtle change, but an important one.
To bring the US market more in line with the rest of the world, Apple launched a new iPhone subscription plan this year. You pay Apple about $30 per month (prices vary depending on the model you choose) and you're allowed to upgrade to a new iPhone every year. It's more like leasing a phone than owning it. But it's a pretty good deal if you know you're going to upgrade to every new iPhone.
But at the end of the day, you're still paying the same amount. It's now up to you if you want to pay the full cost of your smartphone up front, or in chunks over two years. And it's up to companies like Apple to convince you that it's worth spending the actual cost of your smartphone.