Why? Well, they typically lock you into paying absurdly high monthly rates for a long period of time all so you can get the latest and greatest $800 cell phone for “free” or nearly free.
Want to change your plan or cancel? You either can’t do it at all, have tight restrictions on plans to choose from, or have to pay very high cancellation penalties for every month you have left on your contract. Ouch!
Cell Phones Are NOT Free!
A couple of years ago, it got so bad in Canada that carriers we getting people to sign 3 year contracts so that they could give away all but the most expensive phones for $0.
Most people’s devices don’t even last 3 years - they’ve either dropped it, lost it, it has become obsolete and slow, or it just kicked the bucket all on its own. When that happens, they show up to the carrier expecting to pay next to nothing for the replacement and are shocked when they need to fork over $500 or more to get an equivalent phone to what they had before. Double ouch!
I swear for a while there many people thought that cell phones, through some miracle, really were free. No, free cell phones are not some gift from on high, they are paid for out of your own pocket over time by you being locked into a contract that forces you to pay an over-inflated monthly price for your plan.
The Alternative To Contracts
Fortunately, contracts have since dropped back to 2 years in Canada (with an accompanying rise in both phone and plan prices). Even better, there are several alternatives that don’t involve locking yourself into a lengthy contract at all:
Most providers offer some form of prepaid service for those people who have poor credit or don’t want a contract. It means you pay in advance to “top up” your account and then your balance dwindles as you use your phone - either on a pay per use basis or via a monthly plan deduction.
Rogers, Bell, and Telus (RoBellUs) are known for charging very high prices for their prepaid plans which typically offer worse value than their similarly priced postpaid monthly plans that are already overpriced.
However, there are lots of alternative prepaid providers worth checking out that manage to offer decent pay as you go and monthly plans including:
- SpeakOut 7-Eleven Wireless (Rogers network)
- Petro Canada Mobility (Rogers network)
- PC Mobile (Bell or Telus network)
- Koodo (owned by Telus)
- Chatr (owned by Rogers)
- Fido (owned by Rogers)
- Virgin Mobile (owned by Bell)
Going prepaid only really makes sense if you are an extremely light user and want to pay only for the services you use - i.e. voice/text/data by the minute/text/MB. The cost of using your phone will add up quickly, but if you use it mostly for emergencies, short conversations, and when you have a WiFi connection, then this is by far the cheapest option.
If you plan on buying your next phone directly from the prepaid provider you are also getting service from, then your phone selection will be limited and maybe expensive. Do you research on the devices they offer and choose the cheapest option that meets your needs and won’t become instantly obsolete There is usually one diamond in the rough somewhere.
Month To Month (With A Tab)
Some providers tout great plans and newer phones all with no contracts, but those deals usually come with a “tab” that you slowly pay back over time as you pay your monthly fee. The highest end phones often have an increased monthly fee if you want the cheaper upfront phone price. Essentially what we have here is a contract without a contract, because if you do want to leave you have to pay the remaining (usually large) balance of your tab.
These providers can be a good option because they normally give you a small break on the phone price as a goodwill gesture that isn’t tacked on to your tab. Why? Because they expect you to remain a customer for at least a little while and will eventually make that money back. That means if the phone really costs $600, they may only charge you something like $450 for it total including both the tab and your upfront purchase price.
If you go this route, try to find a plan with good value that is cheaper or better than a contract plan with another provider and hold your horses a bit when choosing your phone. Maybe go for an equally powerful and useful Android device instead of the latest iPhone and consider the previous generation as opposed to the most recent handsets.
Koodo is really the only company left offering a tab since Virgin decided to discontinue their SuperTab a few years ago. Fido kind of has a tab with their Tab24 contract, so you might check there as well.
Month To Month (Bring Your Own Device)
Almost every carrier will let you bring your own (unlocked) device and sign up for their regular postpaid monthly plans. If you aren’t an extremely light user, then this is almost always the best way to go. You are free to compare plans across all carriers, choose exactly the one you want, get the best price, change plans whenever a better deal comes along, and choose any phone that you want.
Bringing your own device used to be a complicated affair because carriers operated using different technology and phones were built to work with those specific carriers. In recent years, carriers have started using mostly the same technology and phones now support a myriad of different frequencies and technologies so they work with pretty much any carrier.
Unlocking used to also be complex and expensive, but now you can usually do it by buying an unlock code or service on Ebay for less than $20 and sometimes as little as $1. After unlocking, you just pop in the sim card from any provider and presto your phone works (you may need to update APN settings in some phone to get data to work properly but your new provider can likely do that for you).
Related: How Cell Phone Unlocking Works
Do The Simple Math
What you need to do is run the numbers and see how much that contract is really costing you. Start by comparing apples to apples when it comes to plans and phones and then multiply the monthly costs by the length of the contract you are considering to see which way you come out ahead.
Here’s the information you need:
- The upfront price for buying the cell phone with a contract you are interested in (it might be free or it might not be).
- The monthly cost of the plan that meets your needs if you sign a contract.
- The monthly cost of a (nearly) equivalent plan at any Canadian service provider if you bring your own device or buy your own device somewhere else.
- The cheapest price you can buy the phone you want for or maybe even a slightly cheaper model.
- The length of the contract you are signing (probably 2 years).
Let’s do a simple example using these numbers for the above things:
- 24 months
Total Price With Contract:
$60 x 24 months + $50 phone = $1,490
Total Price Without Contract:
$40 x 24 months + $300 phone = $1,100
The Savings Really Add Up
Here’s the kicker though, after your 24 months is up the price of your plan doesn’t usually go down. RoBellUs has now more than paid back the phone cost to the manufacturer, making a profit off of you all the while, and now they are getting $20 a month worth of gravy added to their profits until you decide to upgrade to a new device or cancel.
Let’s be honest, most people are too lazy to upgrade right on the day their contract expires, so you know they are rolling in the dough and laughing all the way to the bank. You might not even need an upgrade after 2 years, so why do it when you can just keep paying less every month for your service? If you don’t upgrade your phone for another 2 years, your savings increase by another $480.
It doesn’t stop there either. As you can see in my old post about getting a cheap Android cell phone, you can usually get a modern smartphone without a contract for much less than $300 when you buy from a company that offers a tab to get a small discount on the phone, cancelling the next month, unlocking the phone and hooking it up to the cheapest service provider - be that prepaid or month to month.
If you score a phone for $100 instead of $300, then you’ve saved $590 instead of $390 over the length of the contract. That’s serious money that would be better off in your jeans than the pockets of RoBellUs.
If you do all of the above, your total savings over 4 years would be $1,070 and your total cost would be $2,020 - a savings of 35%.
Some Ideas For Finding A Cheap Phone
I might do a full post on this sometime with more detail, but for now here are a few ideas on how you might find a cheap good quality smartphone so you can BYOD if you don’t already have one.
Do Your Research. There isn’t always a huge difference between flagship phones that cost $900 and more budget friendly phones that cost $300. It’s really just a spec war that phone manufacturers are engaging in and sometimes increased specs actually hurt you. You don’t want the highest resolution and largest screen because it uses way more battery power and CPU processing power to light and push all those pixels around. You don’t need 64GB of internal storage, if there is a microSD card slot you can add 64GB to for $25.
You don’t even need the fastest CPU, when the last gen model benchmarks just slower than the latest and greatest and possibly uses less power. GSM Arena is and Phone Arena are two great places to find user ratings, reviews, popularity information, benchmarks, and detailed specifications for different models of phones. Pick something in the mid range and you’ll be just as happy as the guy who paid twice as much.
Try Kijiji or Craigslist. Buying a second hand phone is a great way to cut costs. People are always trying to unload their old phones and competition is pretty fierce because people upgrade so often. If you bide your time, you can snag a really reasonable price on a good phone. There are lots of models to choose from under $100, so just use your research from above to make sure you’re buying a good one.
Ebay is good for new phones. If you aren’t comfortable wheeling and dealing for a new phone, there are lots of people out there who will find ways to get brand new phones for really cheap prices and then turn around and sell them on Ebay for a profit. If you’re going to buy used, stick with Kijiji so you can try the phone out yourself before you buy, but if you want new then Ebay is worth a look.
Look at prepaid and tab-based phones. Prepaid phones and tab-based phones from Koodo are often priced cheaper than the actual outright cost of the phone to entice you to subscribe. They know they’ll make up the initial bath they take on most customers after a few months or a year so they are willing to take the risk of an early cancellation. Some of these phones even come with gift cards or bonuses to sweeten the deal further.
Look for the diamond in the rough that has reasonably high specs, good reviews, and comes with a sign up bonus from all the prepaid providers + Koodo. When you find it, simply activate it, use the service for a month (read the fine print to make sure cancelling right away is ok), cancel (pay off the tab if necessary), then keep the sign up bonus and unlock it and use it to BYOD with any provider you want.
Buy at the right time of year. There are really two times of year when it is best to purchase a cell phone. At these times, plans are at their most competitive, phones are cheapest, and sign up bonuses are largest. And they are back to school and Christmas. Leading up to back to school, companies know that massive numbers of students are looking for ways to keep in touch (possibly for the first time). They want to forge a relationship with students early and hopefully keep draining their bank accounts for years to come. Christmas is obvious, people love to give cell phones as gifts (especially when they’re free right?) so they compete hard to get the lion’s share of that business and then upsell or nickel and dime them later to increase profits.
Sometimes Contracts Aren’t Evil
In a complete about face to all of the above, I’m now going to share with you that both my wife and I are under a contract for our cell phones with Fido. A few years ago, I used to use an unlocked smartphone I got cheaply through Koodo on a PC Mobile prepaid plan that cost me about $20 a month with 100MB of data.
That worked really well for a while except I had to always be aware of how many texts I was sending, how much time I was talking, and how much data I was using. I’d keep calls short and do longer calls on my magicJack, mostly just receive incoming texts and rarely send them, and wait until I had a WiFi connection for doing anything but checking email and limited web browsing. Seeing that I run this website (an online business), it just got to be a little tedious.
Then, one day I was walking through the mall of all places and spotted a big Fido advertisement. At the time, Rogers had not yet brought Fido to Atlantic Canada and this was their big launch offers. They were offering their $39 smart plan for $29/month indefinitely. This was also at the time just before 3 year contracts were ending so companies had plans at their lowest ever prices trying to lock in new subscribers before the new contract changes.
What does that $29 plan get me? Quite a lot actually:
- 450 anytime nationwide minutes.
- Unlimited evenings and weekends starting at 5pm.
- Unlimited text and picture messaging.
- Caller ID and voicemail.
- 600MB of LTE data.
Right now, the cheapest comparable plan with Fido costs $55/mth if you want a discount on a new phone or $40/mth if you bring your own.
For signing the contract they were willing to give us top-of-the-line (at the time) Samsung Galaxy S3 phones for $50 each. My wife didn’t want/need and upgrade, so we were able to turn around and sell hers BNIB for $280 making a nice $230 profit right off the bat.
Now, 2 years later, I called in and got us an upgrade: 2 brand new LG G3 phones (listed for $500 each at Fido) for free so now we can sell our old phones and make even more money. I was surprised I could not only keep my existing plan but it also qualified for the best hardware upgrade prices even though it costs less than their standard plans, which means you must pay $280 more for the phone.
Needless to say, I’m one happy camper and I’m planning to keep this deal going as long as I can. I will keep doing upgrades every 2 years to maximize my value and don’t foresee leaving unless a new plan with a much higher data allotment becomes available for a similar price.
What About You?
I’m curious to know if you have a cell phone contract and how much you roughly pay per month for your cell service. Please take a second to respond to the two super quick polls below so we can all see what everyone else has. If you want to provide more detail, leave a comment as well.