Why unlocked smartphones and no-contract plans are a much better deal

I am so, so sick of the way U.S. wireless carriers totally rip off smartphone users by locking them into expensive 2-year contracts — with the lure of getting a high-end smartphone for only a couple hundred bucks up front. For most customers, the math just doesn’t work.

So I’m casting off the financial and technological shackles, to be a mobile consumer on my own terms. I will never again buy a subsidized phone or sign another long-term carrier contract.

This month I bought an unlocked Nexus 5 smartphone direct from Google, and I’m now switching to my first no-contract plan. Yes, I paid more up front for the phone, Plus I’ll have to pay a hefty “screw you” early termination fee to ditch my Verizon contract. It’s still so worth it.

Why? Here’s the short version: Considering all costs to make this switch, and the savings I’ll get, I’ll see about a 4-month payback plus savings of nearly $70/month thereafter! Plus I’ll have tons more flexibility in devices, carriers and plans from here out.

Hell yeah! Here’s the math behind this choice…

Context: I needed a new phone now anyway. My Samsung Galaxy Nexus, which I bought for $250 subsidized under a Verizon 2-year contract in July 2012, is dogging out to the point of becoming useless for me. (The device is fine; I’m just a power user and have exhausted its capabilities.) So I can’t wait until my current contract ends at the end of this summer to get a new phone.

My average phone bill for the cheapest Verizon plan I can currently get to meet my needs for my Galaxy Nexus is $118/month. Ouch.

I bought my unlocked Nexus 5 from Google for a total of $420, (w/ tax & shipping), with no phone/data plan. I’ve been playing around with it on wifi only to make sure I really like it before I commit. It’s very snappy. I’m happy.

Of course, no smartphone stands alone. For instance, in my experience all smartphone batteries suck. It’s just a limitation of current battery technology. I need a portable backup battery for any phone because I use my phone a lot in places where plugging in isn’t an option, like airplanes. Unlike my Galaxy Nexus, you can’t swap the battery on the Nexus 5. So I got a good deal on a whompous portable backup external battery for the Nexus 5: $40.

I also bought an inexpensive textured case to decrease the chance that I’d drop and break my Nexus 5: $10.

Gross hardware investment for my new Nexus 5: $470.

But there is my old phone: I will wipe and factory reset my Galaxy Nexus and expect to sell it on eBay for about $60-$80. (I’ll throw in my 3 spare batteries, rubberized case and charger for free.) Even if I stuck with Verizon, they’d probably give me $0 credit for my old phone but still require me to trade it in anyway to get a new phone and contract.

So that lowers my net hardware investment for the Nexus 5 to $410 (conservatively).

Currently, Verizon would sell me a comparable new phone, the HTC 1, at the subsidized price of $299, which would require a new 2-year contract. Or, being the generous souls they are, Verizon would sell me the HTC 1 unsubsidized and with no contract — but not unlocked — for just $599. (Yeah, seriously. They should open The Tonight Show with that joke.)

So: Net price premium: $111 for the unlocked Nexus 5, vs. the best I could do by sticking with Verizon. (Remember, I needed a new phone now anyway.)

But wait, there’s more!

"We don't care, we don't have to, we're the phone company!" (Lily Tomlin, as the inimitable Ernestine)

“We don’t care, we don’t have to, we’re the phone company!” (Lily Tomlin, as the inimitable Ernestine)

When I cancel my Verizon contract later this month, I’ll get stuck with an ETF of $170-$180. (I’ll fight it, but I expect to lose. As Lily Tomlin said: They don’t care, they don’t have to, they’re the phone company.)

Anyway, the first no-contract carrier I’m trying is Straight Talk, wireless service offered by Wal-Mart, which resells capacity from AT&T, T-Mobile, and Sprint. They do let you bring your own device (some carriers, like Republic Wireless, don’t). I bought an AT&T Micro SIM card from Straight Talk for $15, including shipping.

So: Total cost to get a new unlocked phone and to lose Verizon: $306

Savings and other benefits

This is the fun part.

My plan on Straight Talk will cost $45/month for phone, text, and data service that should more than meet my needs. No contract, it’s strictly month-to-month. With taxes and fees, call my new phone bill: $50/month.

As I mentioned, I’ve been paying an average of $118/month for Verizon under my existing 2-year contract. Switching to Straight Talk will save me $68/month, conservatively.

So: $306/68 = 4.5-month payback

And thereafter I’ll save at least $68 month in the clear, compared to what I would have paid on Verizon. Which, incidentally, would yield nearly a 200% annual return on investment. Of course, I’ll probably only keep any phone 1.5-2 years, so ROI isn’t very relevant to me — but big monthly bill savings certainly are!

Plus I have no contract — so I can switch carriers, plans, and devices anytime I want! This is important, because all wireless carriers suck somehow — spotty coverage, lagging networks, bad customer service, etc. That’s just how it works. Which is why I want the freedom to switch, if conditions become intolerable. That’s one of the greatest benefits of unlocked phones on no-contract plans, especially models that, like the Nexus 5, can be used on a variety of GSM and CDMA carriers, giving me more choice and leverage as a consumer.

I looked around at no-contract, bring-your-own-device plans, and they fall in the range of $45-$60/month for the kind of service I want. I do have several very good options. So even if I switch carriers, my bill savings will probably remain consistent.

Plus, if I travel overseas, I can just buy a local prepaid SIM for my unlocked Nexus 5. I’m hoping to do some international travel (for fun!) in 2014, so this is very appealing to me.

…Anyway, that’s the math behind this excellent deal, and that’s why I will never, ever sign a long-term contract with a wireless carrier. There’s a reason why long-term contracts are a rarity in almost every other part of the world. When it comes to wireless service, welcome to the 3rd World, U.S. — we’re it!

The only time that I see long-term carrier contracts not being a completely egregious rip-off is for family plans — which offer consumers some economy of scale as well as more device upgrade flexibility. Then it might make sense. But for one person with one phone? Forget it!

Why would you want to do business with a company that thinks you’re too lazy to do a little up-front math?

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