The Bottom Line
Two-year contracts have replaced those of shorter length. For most people, the choice is a two-year deal or a pay-as-you-go program with no contract.
As previously mentioned, since carriers tend to subsidize the phones that are sold to new postpaid customers, they generally require a contract to help ensure that they will recoup their investment in that customer.
Until recently, that meant a one-year contract. However, a combination of market factors has led to the two-year contract becoming the standard. One-year deals can still be found, but usually there are heavy penalties associated with that shorter length — phone prices can be significantly higher, or there might be a higher activation fee.
For most people, the choice now comes down to whether to sign a two-year contract or to go prepaid, with no contract at all. The latter obviously offers more flexibility, but you will pay for that flexibility in both a higher phone cost and higher per-minute charges.
If you do go with the two-year contract, just remember to really put your service to the test during the trial period so you can cancel if it isn't working out for you. Otherwise, you are stuck for quite a while.
Here are some reasons two-year contracts have become the norm:
- Ever decreasing per-minute pricing means it takes carriers longer to recoup their initial investment in a new customer.
- Phones are getting more complex and therefore more expensive. Since most consumers still want a cheap or free phone, this means carriers need to spend more upfront to acquire a new customer.
- Industry consolidation has led to fewer national carriers, making it easier to get all competitors to “go along” with the change.
- Longer contracts offset some of the increased risk of customer defections that were a side effect of wireless number portability.