There's been a lot of turmoil in the cellphone industry recently. Industry maverick T-Mobile has been cutting prices and rethinking longstanding industry practices, forcing other carriers to follow suit. The result: Consumers can get better deals than ever before, but they also face more — and more complicated — options than ever before.
We're here to help. Read on to learn how the market has changed, the best options for getting a new smartphone, and how the nation's four major wireless networks compare on network quality.
How T-Mobile blew up the two-year contract and started a price war
Two-year contracts used to be standard across the cellphone industry. In exchange for a two-year commitment, customers got a heavily discounted — sometimes even free — phone.
Rolling the costs of a new cellphone into a customer's monthly bill avoided sticker shock and helped boost the growth of wireless service. But this arrangement also had some downsides. It encouraged customers to buy a new phone every two years, whether they needed one or not. And a lot of customers hated being locked into long-term contracts — and facing steep early termination fees if they broke them.
So in 2013, T-Mobile declared war on two-year contracts. Under T-Mobile's new pricing structure, customers could cancel their service anytime they wanted, without paying an early termination fee. The flip side was that T-Mobile stopped subsidizing customers' handsets. Customers had to either bring their own phones, pay the full retail price for a new one, or pay for a phone in monthly installments.
Because it was no longer subsidizing customers' handsets, T-Mobile could offer monthly rates dramatically lower than what its major competitors were charging.
T-Mobile's strategy has proven so successful — this summer it passed Sprint as the No. 3 wireless carrier — that other companies have been forced to follow suit. Verizon announced it was phasing out contracts in August of this year, and Sprint announced it was following suit a few days later. AT&T is still offering two-year contracts, but its CEO has predicted that they are "going to go away slowly."
T-Mobile's moves also touched off an industrywide price war. The result is that you can get more service — and, especially, bigger data plans — for less money.
This has all been good for consumers, who can get more bang for their buck. If you've had the same cellphone plan for more than two years, you're probably getting a bad deal; it's worth checking out today's packages to see if you can get a better one.
The three ways you can get a new cellphone
Wireless companies used to sell voice, data, and a cellphone in one bundle for a single monthly fee. T-Mobile forced the rest of the industry to unbundle these things from one another, making things more complicated. There are more options, and you can mix and match them in more ways.
If you're in the market for wireless service, you have three basic options, in order from least to most convenient:
- Bring your own device. This could be the phone you used with your previous wireless plan, or it could be a new or used device you bought yourself.
- Pay cash for a new device. All four carriers offer zero percent financing plans to customers with good credit. If you qualify, you should probably take advantage.
- Choose a leasing or early upgrade plan, like T-Mobile Jump, AT&T Next, or Sprint Lease.
The most frugal option — and the one that involves the most hassle — is to buy a used phone and then bring it with you when you sign up for wireless service. If you buy a phone that's a year or two old, you can get a significant discount compared with a new phone. And you may also be able to sell your old phone, saving still more money. There are a number of sites, including Amazon, Craigslist, and Glyde, that help people buy and sell used devices.
But this approach has one big potential pitfall: You have to make sure the phone you choose will work with the network of the wireless network you choose. The details here are beyond the scope of this article, but if you buy a relatively new phone that was previously used on the same network you want to use, you should generally be okay.
At the opposite end of the cost and convenience spectrum are the leasing and early-upgrade plans. These allow you to pay a somewhat higher monthly rate in exchange for being able to upgrade your phone more quickly than the standard two-year cycle. They generally require you to trade in your old phone to get a new one, saving you the hassle of disposing of old phones.
However, for most people the best option will be to buy a phone using a two-year financing option and then hold on to it for more than two years. After two years, your phone will be paid off, so your monthly bill will drop. If you can hold on to your phone for more than two years, you can save a significant amount of money.
The best wireless carrier might depend on where you live
Which carrier should you choose? The national wireless market is divided into two tiers. AT&T and Verizon are the two largest carriers in the country, with more than two-thirds of the market between them. T-Mobile and Sprint are each about half as large.
Generally speaking, the larger carriers tend to have better network coverage. Verizon is widely viewed as having the most extensive network, followed by AT&T, Sprint, and T-Mobile. On the other hand, Verizon and AT&T tend to charge more than their smaller rivals.
However, you don't care how these companies' networks perform in general — you only care how they work in the cities and neighborhoods where you're going to spend time. If Sprint or T-Mobile's network works well near your home and office, you might be totally satisfied with them even if they offer poor coverage in other areas.
The Verizon and AT&T networks are superior in two specific ways. One is service in rural areas. The larger networks can afford to spend more on cellphone towers, so they're able to cover more remote areas than the smaller carriers can. So if you live in a small town, you'll probably want to go with one of them. However, if you spend all your time in urban areas, this might not matter.
The larger carriers' other big advantage is that they have more low-frequency spectrum. This kind of spectrum is a lot better at passing through thick walls and other obstructions. That means that if you happen to live in a huge apartment complex, or you work in a big office tower surrounded by other office towers, you might find T-Mobile and Sprint's coverage frustratingly spotty.
In urban areas where T-Mobile and Sprint do have coverage, on the other hand, the smaller carriers have an advantage of their own. Because they have fewer customers, wireless connections are often faster.
If you're not sure which carrier is best for you, you might want to take advantage of carriers' return policies. All four wireless providers allow customers to return their phones and cancel their wireless plans within 14 days — though note that some charge restocking fees of around $50. So you can sign up with the cheapest provider that seems to meet your needs and see how it performs. If connectivity is disappointing, you can return the device and sign up with someone else.