by Robert Laws

Created on: September 23, 2009

There are many types of cell phones and cell phone service plans available for consumers to choose. Some plans require a long-term commitment (usually 1 or 2 years) and some are pay-as-you-go plans, with no ongoing commitment. It is our responsibility as consumers to compare plans and find one that suits our purposes; including supporting the type of phone we want, providing the level of service, features and coverage we want, and with the appropriate level of commitment.

If, after comparing plans, we opt for a long-term service contract, we have no right to terminate that contract early, other than under the terms of termination in the contract, which may include an early termination fee or other penalty.

A contract is a commitment you agreed to. Conceptually, it is no different than a vehicle leasing contract, a home mortgage contract, an insurance contract, etc. If you do not like the terms of the contract and prefer not to have such a long-term commitment, you should go with a pay-as-you-go option. You cannot expect to get all the benefits of a long-term commitment (like discounted phone pricing and lower-priced calls) without accepting the associated responsibility.

When you sign a 2-year commitment with a cell phone company, the company knows that it will receive regular income from you, and every other long-term customer. It does not generally make any more profit from this type of plan than a pay-as-you-go plan, but having this predictable income stream enables the company to be more decisive in investment decisions, which allows the company to improve its range and quality of services faster than would otherwise be the case.

Most long-term contracts offered by US cell phone companies include the option for a free or discounted phone. The amount of this discount is paid for by the company and they recoup the cost back from you over the period of the contract. This is similar to many 3yr and 5yr fixed-rate mortgages, where the mortgage company will offer you a lower interest rate for the first few years as long as you commit to pay a penalty for refinancing within a specified timeframe. Effectively they are front-loading the benefit and taking payment over the longer term.

Cell phone companies could easily produce a 2-year contract that had a 'cancel anytime' clause, but because they would not be getting any type of time commitment from the consumer, they could not afford to discount the cost of the phone and would have less predictable income. The contract would look very similar to current pay-as-you-go contracts.

In the past, some of the companies could be accused of a lack of transparency regarding fees, but today that is not true. Conditions such as early termination fees are clearly shown on their websites, along with other information like definitions of when the nights and weekends begin and end. The fierce competition in this industry helps keep all the providers honest. Anyone that signs up for a cellular plan today without knowing the terms have only themselves to blame.

In summary, we already have lots of choice as consumers and can select the plan that is right for us. We have the obligation to perform the appropriate research before we buy, as we do with any other product or service. If we choose a plan with a long-term commitment, we should be held accountable for terms we agreed to. If we don't like commitment, we should go with a different plan.

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