Ways Cell Phone Contracts are Completely Overrated

Posted on February 28, 2014 by Jon Colgan

T-Mobile garnered criticism when they began paying early termination fees for new customers but not extending the same deal to existing customers. I’ve written about that deal’s misplaced priorities, and I’ve had countless conversations with T-Mobile customers who feel the same. The driver behind telecom companies’ decisions to run deals like this is that it’s cheaper/easier, so they think, to entice a new customer in a buying-decision moment than it is to satisfy an existing customer every day of a customer relationship. The numbers seem to support this too–cost to acquire customer is less than cost to keep one if margins remain thick are incrementally thickened over time–but that is not to say that telecom companies couldn’t change the numbers if they desired. What do I mean?

I think the true test of a company’s confidence in their value proposition is whether they require long-term contracts. Traditionally, telecom companies used long-term contracts to prevent dissatisfied customers form leaving. Nowadays, more companies crop up every season with competing wireless and wire-line (i.e. cable, satellite) services that do not require contracts. Those companies are acquiring and retaining customer, and they’re doing it without contracts. That’s confidence, and that rebuts any notion that telecom customers must necessarily be locked in contracts and that customers must necessarily hate their telecom providers. Customers of these newer telecom carriers enjoy savings that their later-adopting counterparts do not. On average, for example, the newer no-contract wireless carriers earn one-fifth the margin that the big carriers do. They’re able to charge less and still profit for two reasons:

1. They’re not spending massively on customer service to put out fires and keep customers sedated when customers realize they’re being squeezed.
2. They’re not spending massively to convince customer prospects to do business with them despite those customers’ bad experiences with that company in the past and all of the similar horror stories customers hear from friends about the company.

When you keep customers happy by treating them well and not nickel-and-diming them, the cost of doing business goes down. So, my best tip for saving money on telecom services is to do business with newer, disruptive companies who’re shirking the traditional model of profiting a the expense and frustration of customers. My second best tip is, if you’re in a contract and need to get out in order to take my advice, then check out CellBreaker.com.