Blogs & Comment

New cellphone carriers should offer contracts

As long as they maintain the option to buy up front for those who want it, there’s no shame in offering contracts.

Cellphone users hate contracts, right? Yes, they do, but there’s one thing they hate even more: shelling out big bucks for phones. As someone who just plopped nearly $600 on a new smartphone, I can attest to that.

That’s why the rumblings are starting about Canada’s new cellphone carriers, particularly Wind Mobile, ditching their anti-contract stance. The Financial Post had a story the other day about Wind moving toward offering those hated contracts, much like the big three (Bell, Rogers and Telus) do. According to a Canaccord Genuity analyst who met with Wind management, the carrier will begin offering contracts starting with the back-to-school season.

Wind chairman Anthony Lacavera said the analyst had misunderstood what the company was planning, but the article didn’t elaborate much on what he actually meant. Lacavera later cleared it up when he explained to me that Wind wasn’t going to introduce contracts, but rather it was looking to expand its “tab” feature, which allows customers to pay off their phones over time.

Currently, the WindTab lets customers put up to $150 of their new phone on a sort of layaway plan. Each month, Wind takes the equivalent of 10% of the customer’s bill off the amount they owe on the phone. So, if the bill is $40, the customers owes $4 less on the phone. The higher the bill, the faster the phone gets paid off. If the customer wants to switch carriers or get a new phone, they have to pay off whatever is left.

Lacavera told me the company is looking to raise the amount that customers can put on their tabs, with $250 being his preference. That would put some of the higher-end smartphones, which generally sell in the $500 range, within the comfortable expenditure reach of the average consumer.

I wrote about this tab idea, started by the likes of Telus’s Koodo and Bell’s Virgin, a while back. While it may seem like a decent half-measure between a contract and buying a phone outright, it’s actually not very different from a contract. Paying off a $150 tab at $4 or $5 at a time means the customer will be free and clear in about three years, which is just as bad as any Big 3 agreement. Extending the tab to $250 would make it worse—at $5 a month, that shiny new smartphone would be paid off in four years.

In the end, the customer pays for the phone one way or another, either up front or over time. Is a tab therefore better than a contract? It’s really six of one, half dozen of the other, pardon the cliche.

With Wind and fellow new carriers Mobilicity and Public Mobile offering considerably better monthly service plans than the Big 3, it’s time for them to indeed give up their anti-contract stance and call a spade a spade. As long as they keep the deal terms reasonable, like one and two years rather than the world-leading three years of the Big 3, and as long as they maintain the option to buy up front for those who want it, there’s no shame in offering contracts.

Compared to spending hundreds of dollars on a phone up front, they really are the lesser of two evils.