Why Sprint Just Brought Back the 2-Year Contract
There are plenty of ways that wireless carriers can get you to pay more than you anticipate. But for the most part, a two-year contract is no longer one of them. Sprint was the last of the major U.S. carriers to finally discontinue the option to choose a two-year contract. But Mike Dano reports for Fierce Wireless that just a month after getting rid of the option, Sprint reinstated two year-contracts, ostensibly to give users more choices on how they pay for their smartphones.
“We listened to our customers and are giving them more choices to get their new device,” Sprint spokeswoman Michelle Leff Mermelstein told the publication. “Sprint is the only carrier to offer the most choices to obtain a new device — lease, installment bill, two-year contract or pay full retail price.” Sprint’s website lists four options for customers looking to buy a new phone; they can lease a device, pay for a device via monthly installments, sign a 24-month contract, or pay the full price of the device upfront. “For example,” Dano notes, “Sprint is selling the 16 GB iPhone 6s under a leasing model ($26.39 monthly), an installment model ($27.09 for 24 months), a contract model ($199.99 through a two-year contract), and full price for $649.99.”
Sprint’s sudden reinstatement of two-year contracts is an interesting move given that in early January, it joined the rest of the country’s top carriers in discontinuing two-year contracts. It was reported in January that Sprint had stopped giving new customers the option of buying a subsidized phone and signing a two-year contract, though the carrier planned to continue offering contracts for tablets, and additional phone lines and upgrades could still be offered on contract “on a reactive basis only.” As of January 8, smartphones subsidized by two-year contracts were no longer being offered on Sprint’s website.
Sprint chief financial officer Tarek Robbiati had practically confirmed the carrier’s choice to drop two-year contracts, telling investors that leasing plans — which enable customers to lease phones at a monthly rate and trade them in for new phones a year or so later — are a much better option for the company. Robbiati referred to Sprint’s leasing program as a “churn killer,” explaining that it enables the carrier to re-engage with subscribers once their lease period is complete. Conveniently, leasing also offers Sprint a way to generate revenue by selling refurbished products.
“It is apparent to the market now that we are eliminating subsidies moving forward, which is in line with the rest of the industry,” Robbiati said at the time. Sprint’s short-lived move to eliminate two-year contracts followed similar choices by other carriers. T-Mobile got rid of the contract model in early 2013. In 2015, Verizon largely discontinued contracts, though it will continue to offer them to existing customers. In January 2016, shortly before Sprint dropped contracts from its website, AT&T stopped offering contracts.
Dano reports that Sprint’s choice to reinstate two-year contracts and the subsidized device pricing that they enable is most likely a move designed to set the carrier apart from its competitors. How sound that plan will prove to be, however, remains to be seen, since carriers moved away from two-year contracts due to the fact that most Americans don’t seem to like them very much. AT&T and Verizon have offered installation plans alongside two-year contracts for years, and both found that customers largely prefer installation plans to two-year contracts.
As Nick Statt reports for The Verge, options that are more transparent than the two-year contract have also proven more lucrative. The two-year contract locked customers in to a single carrier’s network, and obscured the true cost of the phone by bundling it with the monthly service bill. But AT&T, Verizon, and T-Mobile have transitioned to monthly installment plans and full-price phones, and have become more lenient about enabling customers to switch networks.
The fact that Sprint is bringing two-year contracts back probably means that customers have complained about its disappearance, which Statt notes really just means that “some people seem to enjoy pretending a phone costs less than it actually does.” High-end smartphones often cost more than you’d really like to spend on one, and while contracts are pretty good at obscuring how much a phone really costs, carriers have replaced contracts with an array of options that can make it even more difficult to figure out how much you’re really paying and what option is the best deal for you.