AT&T Terminates Two-Year Contracts in Favour of Smartphone Leasing

by Matt Klassen on January 4, 2016

22TECHFIX-facebookJumboIt wasn’t that long ago that the idea of smartphone leasing, or paying monthly instalments with the option of paying a little extra for an early phone upgrade, was nothing more than a promotional gimmick. Now it seems like it’s the new de facto industry standard. To that end, AT&T has announced that on January 8th it will no longer be offering a two-year contract option at all, abolishing the traditional post-paid model in favour of Next, a program that requires users to rent or lease smartphones on a monthly instalment plan.

Now to be fair, paying in monthly instalments does have its upsides, given that users can trade in their phone for a new one after a certain time, they can choose between 18 month or 24 month leases, and they no longer have to pay cash up front for any phone they want, even the high-end ones.

But the problem is that smartphone leasing is just that, a glorified rental program, meaning customers are now paying AT&T for access to the company’s wireless network on a device the company owns, an endless money pit that will undoubtedly dupe many by hollow promises of savings.

“With $0 down for well-qualified customers, the ability to upgrade early, and down payment options available with even lower monthly instalments, our customers are overwhelmingly choosing AT&T Next,” said a spokesman for the Dallas-based company.

There’s no question that abolishes post-paid term contracts marks a significant paradigm shift in the mobile market, as for years the industry has depended on contracts as their prized money-maker. In fact, it wasn’t that long ago that the wireless industry even chopped the amortization period from three years to two, giving customers a set bill amount on a phone they owned.

The problem with such a subsidized contract model, however, was that customers never really understood how much a smartphone would cost, given that the price was masked by the relatively low subsidy and the long repayment period, but now those days are over, and for customers that means if you want to own your phone you have to pay for it up front in full, otherwise you’re on the rental plan, hopelessly beholden to your chosen carrier.

It should be noted that AT&T does give the option for a down payment, which at first blush would mean that customers can still pay a lump sum up front to reduce the overall monthly lease amount, but the reality still exists that at the end of it customers won’t own that phone at all, and will continue to pay monthly instalments on it in perpetuity (or upgrade, of course, and pay instalments on the new phone, and so on and so forth).

I have no doubt that many will be attracted to this new industry shift, given that it eliminates front end payments for phones and the binding nature of a two year contract, but don’t think for a second that there are any actual savings to be had, as instead of locking oneself into a two-year contract, customers are ostensibly locking them into a lifetime of leasing; perpetual payments for something they’ll never own.

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Written by: Matt Klassen. www.digitcom.ca. Follow TheTelecomBlog.com by: RSS, Twitter, Facebook, or YouTube.

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