We all are fairly familiar with how smartphone subsidization works. You walk into a carrier store, browse the new phones on plinths and displays and maybe ask for a little help. When you finally decide on a single device, you agree to a two-year contract, go through the activation process and swipe your card.

By signing up for a two-year agreement, however, you're swiping your card for anywhere from $50 to $300 instead of $450 to $700. A major difference, no doubt.

By agreeing to continue service, uninterrupted, for two years, the wireless providers here in the States offer smartphones at discounted rates. They take an upfront loss on the price of the phones, but over the course of two years, that loss is paid in full (and then some) through your monthly bills. The advantage for the consumer is quite obvious: an immediate and drastic discount on the price of a phone. The benefit for the carrier is twofold: they lock customers in for two years, guaranteeing continued service, and can justify charge astronomical rates to cover their initial losses.

Recently, though, there has been a surge of prepaid services and, likewise, customers here in the States. MVNOs, as they are called, operate on large, nationwide providers networks and offer similar – if not the same – service for a fraction of the cost.

The plans are better, many are BYOD (bring your own device) and it can literally save families hundreds of dollars each month.

Some people, however, have various reasons for wanting to stick with their carriers. Loyalty, grandfathered plans and coverage are only a few reasons my family continues to use Verizon. But there is little incentive for loyal customers who may want to go no-contract on AT&T or Verizon.

For instance, my stepfather was eligible for an upgrade when the iPhone 5 launched. But rather than pay $300 for the 64GB model, he decided to purchase the iPhone 5 without a contract to keep his grandfathered unlimited data plan. Instead of $300, he paid just over $900 after taxes.

We're seeing more and more of this. With the rise of prepaid carriers, more postpaid subscribers are going contract-free – either to keep a grandfathered plan, or because they don't like the idea of being tied down. Used, no-contract smartphones can be had for relatively cheap if you know exactly where to buy from and how to play your hand right.

The worst part is that subscribers get no rewards or perks for going contract-free. Despite the fact that carriers make hand over fist on no-contract customers, after the agreement expires, the rates do not change. The customer is no longer paying extra to cover the cost of the phone, yet they still pay premium rates.

As much as I detest contracts, this is one of the main reasons I continue to sign agreements time and time again. Prepaid carriers don't exactly offer the newest devices or services (i.e.: finding decent LTE coverage to be used with a high-end smartphone on a prepaid provider is a pipe dream). This is ultimately why I pulled the plug on my journey into the prepaid realm.

There is no incentive for customers to be loyal, to go no-contract, and it makes no sense. With shared data, carriers could offer a free additional gigabyte per month to customers who go no-contract, and add 1GB per year that said customer is contract-free. Or they could apply a small discount to a contract-free customers' accounts. Providers would continue to earn the same astronomical profits while incentivizing loyalty and without pressuring customers into contracts.

I, for one, would be inclined to go no-contract if there were some logical reason to. But there isn't. Instead, providers insist things like letting you keep your existing rates is a compromise on their end, like letting you keep unlimited data is costing them loads of cash.

What say you, folks? Would you go no-contract and buy phones at retail value if you had some incentive? Or are you happy with your current contract and rate plan? Sound off below!

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15 Reactions to this post

"Have you considered going no-contract with your provider?"

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Gordon Christie
Gordon Christie i did it saved a fortune
Kenneth Li
Kenneth Li @alexander Fool! I just did a speedtest on att LTE, 24mb down/8.5mb upload! Get back to me when you have those speeds on prepaid!
Alexander Dewitt
Alexander Dewitt And to you retards who think prepaid service is different or slower I dare you to try a speed test on comparable devices. Prepaid (with exceptions to metro pos boost and virgin) get the same speeds and coverage as contract phones.
Alexander Dewitt
Alexander Dewitt I have airvoice. $40/month unlimited talk text and 500mb web with a Samsung Google nexus X. I wifi it up to get me through but better than $85/month for comparable plan in att
Jeff Jones
Jeff Jones I think it's complete garbage and BS that even if you BYOD or buy a full retail phone you still have to pay the same rates as those with discounted/subsidized devices. A huge chunk of those rates are to make up the discount/subsidy. I really find it hard to believe that service costs that much on its own. I pay just under $100/month with Verizon on grandfathered unlimited. I will keep it until either my phone dies or they take that away too (which I feel is just a matter of time). I HATE how they FORCE you to have voice plan even if you don't use it. The cheapest one they offer is $49.99 or something ridiculous like that and I rarely ever use even 1/4 of the minutes if that. But do I get any break on that? Of course not. That'd make far too much sense. I'm considering going pre-paid or no-contract or something anyways.
Richie Soares
Richie Soares I switched to Straight talk 3 months ago from Verizon and I love it. Have the Galaxy S2 and have yet to drop a call or lose signal. It does work off of AT&T. Including taxes and fees it comes out to $49.25 a month for unlimited talk, text & web. Love it and I recommend them highly.
Carey Falk
Carey Falk Been with Straight Talk for almost a year. Already paid less for my GNote ($475 on EBay) and service (unlimited everything) than if I were under contract. Service may not always be great but for 1/2 the price ($43/mo) and the choice to pick another phone (like a SGS4), it's most definitely worth it.
Tee Oh
Tee Oh The service for tmobile is the same and it's not bad just paying full price for a phone hurts
Henry Lavender
Henry Lavender Yes. I think PAYG is more of an option here in the UK. Some great deals to be had, 250 mins, unlimited texts and internet for £12 ($19.50) Yes please :)
Brian McGuinness
Brian McGuinness
Raj Sinyor
Raj Sinyor Just did and something funny I'm getting more for less . The only thing is that I have to pay for my phone flat out. Tmobile.
George Millhouse
George Millhouse No not really Anthony they have taken away many of the ways to get out of your contract. Go luck trying
Abram Wenevermet Dennis
Abram Wenevermet Dennis Yes & no.. only the phones I want cost a fortune.. no phone is worth $500-$700
Jessica Rodriguez
Jessica Rodriguez No because it wouldn't be the same service, prepaid service sucks and contract service is awesome my motto you get what you pay for and contract service is way better and so are phone choices
Anthony Evans Jr
Anthony Evans Jr they make more money with a signed piece of paper this almost gurantees them something if you cut and run is why you dont get a discount but I rather stay contracted so many ways to get out of contracts anyways

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