Why is AT&T raising the no-contract and one-year contract pricing of phones?

Taylor Martin
 from  Concord, NC
| April 4, 2011

Earlier this morning, Ol' Blue confirmed yet another change to the way they do business. They announced that they would be raising both the one-year agreements and no-contract pricing on smartphones, quick messaging phones, and feature phones alike.

All smartphones (save for the iPhone) purchased with a one-year agreement will jump $150 from their previous listing and iPhone early upgrades will go up $50. Smartphones bought without a contract will be selling for $50 more than before. Messaging and feature phones will be raised $10 from their current pricing for one-year agreements and $20 more for contract-free.

Nobody is happy when carriers start raising prices, especially when it deals with the pricing of phones. However, some – not all – of these price increases are necessary, whether we want to believe it or not. In their own defense, AT&T offered this explanation to BGR as to why the increase of pricing is taking place:

“We’ve updated our early upgrade and no commitment price points for smartphones and feature phones,” and “Only customers who are not yet upgrade eligible or who do not want to sign a contract are impacted. As mobile devices become more sophisticated, their cost goes up. This change reflects the increased costs, while still allowing us to offer customers the latest device before they qualify. We’re happy to discuss individual account and upgrade needs one-on-one with customers.”

For the most part, they're right. But they're only telling a half-truth. Not all phones are getting more expensive. Many have gone down in cost, especially messaging and feature phones.

Phones that are just now releasing with last year's specs, like the Inspire 4G, have moderately low unsubsidized prices. The Inspire was $399.99 contract-free when it first released. It is equally, if not more sophisticated, than previously released devices, but it's a solid $200 less than many other unsubsidized smartphones. This is likely due to the use of older parts on the internals of the phone.

The factual portion of their statement is that not everyone will be impacted by this. It isn't like they have forced everyone to shell out more money. If you play by their rules – wait for your 24-month contract to end – this does not affect you.

What it boils down to though, is AT&T is not making as much money off of phones. We live in a world where phones become outdated in mere months. Staying tied down by a two-year agreement is becoming increasingly hard to do. More and more people are taking advantage of early upgrades, shorter contracts, or buying contract-free.

Previously, these methods of purchasing put less money in AT&T's pockets in the long run. These price changes aim to fix that. If we don't see prices ramped up in one area, we'll see them in another. I would rather the no-contract and one-year pricing jump rather than service charges.

If this was a one-time thing, it wouldn't strike a nerve quite so hard. Instead, this is the second time we've seen an increase in device pricing from AT&T. They bumped the early upgrade fee from $75 to $200 just six months ago. They also had to raise the price of some no-contract phones, to ensure that the unsubsidized price wasn't below that of the early upgrade price.

The more unnerving part these two alterations to their pricing is they can't seem to get it right without having to adjust the no-contract price of phones. This is a price that should, for the most part, remain the same. If anything, it should only drop over time. Raising this price amounts to pure profit and a smack in the face to customers who don't particularly like dealing with contracts. AT&T should try a little harder to adjust their one-year contract and early upgrade pricing to fit within the ranges that are already set.

As of late, US carriers seem to be doing everything they can to keep customers in their contracts and snuff out any ideas of this nation going primarily unsubsidized in this decade. We've already seen the start of what could be a full-on prepaid revolution. If carriers continue to make drastic contracted price changes and cutting unlimited services, it may act as a catalyst for the revolution and turn the spotlight to prepaid services like Virgin Mobile and Boost, among many others.

AT&T isn't exactly the favorite carrier around and constantly changing things around isn't helping their situation. If they can afford $39 billion to acquire T-Mobile, they could at least leave no-contract prices alone, right? What do you guys and gals think? Is AT&T in the wrong for upping the no-contact price and one-year agreement price? Do continual bumps in prices make you consider prepaid as a viable option?