Should carriers start using three year contracts to further subsidize phone prices?

Evan Selleck
Contributing Editor from  Arizona
| December 10, 2011

I’m not quite sure where I saw it, as I like to read the comments section on stories all over the Internet, but I’m pretty sure it was someone commenting on the current situation with Verizon’s Galaxy Nexus. The person said something along the lines of, “The carriers make the rules in this world; we just live in it.” I laughed when I read it, but there’s probably never been truer words spoken about the situation. We watch carriers do all sorts of things, and we just have to watch it happen, and for some people out there, we even have to incorporate it into our lives sooner than later. It had me thinking about contract prices, but more specifically it had me thinking about contract length and prices, and it made me wonder if the carriers here would ever start using three-year contracts like we see in other international markets.

Subsidizing the price on a phone isn’t anything new. In fact, people will try to do many different things to make sure that they don’t have to pay full price for a phone. That makes sense, of course, as buying a phone out-right usually means you’re dropping anywhere between $500 and $800 to get your hands on it. But, when a carrier subsidizes that phone, you can expect to pay anywhere between $100 to $300 for it. Paying that lesser amount up front is usually all people care about, not really considering the contract you’re paying along with it.

And, the contract usually includes quite a few different things. Your standard minutes, and then your text messages, and then we can’t forget the data plan you’ll need with that brand new smartphone. The carriers are subsidizing the price on the phone, because you’re going to be paying all of those “extra” charges every month for the length of your contract. So, why wouldn’t they subsidize the price of the phone, right? Right. But, in the case of one particular wireless carrier, phone prices are starting to get a bit expensive. People didn’t seem to be ready to pay $300 for a phone, especially when they were signing that new, two-year contract to get that phone.

Of course, the majority of those phones have been successful in their own right, so there’s probably no changing that one particular carrier’s mind now, so we’re going to have to live with it. Even while other carriers are launching similar devices for far cheaper prices. And that’s what got me thinking that carriers should look to international carriers, and look at how they offer plans. While I wouldn’t say they need to take any cues from their data packages (please don’t), their up-front prices for phones are very, very enticing.

Right now, while we’re still lacking any kind of official word on pricing, we can expect the Samsung Galaxy Nexus to launch on Verizon’s network for $299.99. Up in Canada, the phone recently launched on two different carriers, and you can get the phone for $159.95. Interestingly enough, both carriers are only offering the phone with a three-year contract (and out-right for $649.99), instead of offering one- or two-year offerings as well. But, with the way that people incorporate contract pricing into their purchase decision (which doesn’t seem to be at all), it would make sense for carriers like Verizon, and maybe even AT&T, to offer a three-year contract and drop that pricing of the phone even further.

It would be pretty exciting to see the Galaxy Nexus, or any other high-end phone coming to Verizon’s or AT&T’s networks in 2012, launch with a cheap, cheap price tag. Then again, people are used to their two-year contracts, and the moment one of the major carriers in the United States tried to push a three-year deal on folks, that would be the time they start really thinking about the price of the phone up-front, and how much they’re paying every month for three years. Which is fine; people should think about that stuff. But I honestly believe people would be willing to accept those new contract lengths just to get the price of the phone down up-front.

What say you? Where do you stand on those three-year contracts you hear about in other countries? Would you sign a three-year deal with one of the carriers here? Let me know in the comments below.