It’s difficult to understand the true cost of a smartphone, according to Consumer Reports. In the quest by major wireless carriers to reduce the upfront costs of those pocket-sized computers, they advertise heavily discounted phones, then lock customers into expensive, long-term service agreements and push them to overbuy data plans.
Many customers are so bewildered with the buying process that they renew with their existing carriers as a matter of course.
In the annual Consumer Reports National Research Center survey covering more than 58,000 subscribers in 23 metro areas, most respondents stayed with their provider more than two years, the length of a standard contract, even though only half were highly satisfied. And with each new contract, customers are induced to abandon perfectly serviceable phones in favor of newer, more advanced models.
“Wireless service has always been one of the most complex purchases a human can possibly make,” says Eddie Hold, a wireless industry analyst with market research firm NPD Group. “It’s always been horrific.”
But the landscape is changing. The two-year contract is under assault. Consumer Reports’ exclusive report shows that no-contract and prepaid service from smaller companies such as Consumer Cellular and TracFone rank high in customer satisfaction. Those carriers offer high-quality phones, relatively reliable service and simpler, more consumer-friendly plans. Indeed, Consumer Cellular and TracFone did better than the major standard providers in CR’s annual customer satisfaction survey for the past few years.
Larger carriers such as AT&T, Sprint and Verizon also offer contract-free services. Meanwhile, T-Mobile, the smallest of the big-four carriers, has dispensed with contracts for service and has decoupled the cost of the phone from the cost of service. Yet T-Mobile still allows customers to spread out the cost of a phone over a 24-month period. AT&T and Verizon now offer similarly structured “installment plans” for phones that allow customers to upgrade their device after six months or a year, though they don’t discount their monthly service the way T-Mobile does.
What’s behind all the confusion and misleading pricing is the phone subsidy. To make higher-end smartphones that could typically cost $400 to $650 seem more affordable, carriers bury much of that cost in the price of service, then stretch it out over the life of a contract. That makes phones cost less upfront than they would on the open market and makes service cost more.
Service costs are driven up further by plans that force you to buy data in bulk increments. Among respondents who had data plans that set limits on usage, 38 percent used only half, or less, of their monthly allotment. As a result, many customers may well have overpaid for their wireless service.
The best carriers
Tiny Consumer Cellular was the leader in Consumer Reports’ satisfaction survey, with top scores for value, data and support. Ironically, Consumer Cellular uses the network of lower-ranked AT&T. (It’s worth noting, however, that Consumer Cellular customers in the survey didn’t use data heavily.) Other highlights:
• Verizon once again scored the highest overall among the major contract cellular service providers. Respondents gave the company high marks for data service and some aspects of customer support.
• T-Mobile and AT&T rated a peg behind Verizon, with mostly ho-hum marks, except for AT&T’s top-rated 4G service.
• Sprint has fallen to the bottom of the Ratings, receiving low marks for value, voice, text and 4G reliability.
• Prepaid carriers TracFone, Straight Talk and Net10 (brands of TracFone Wireless, a subsidiary of America Movil) beat all four major carriers and got high marks for value.