No-contract options multiply

Last reviewed: January 2011
January 2011 issue cover This article appeared in
January 2011 Consumer Reports Magazine.
Latest on Cell phones and services

More than 90 percent of our survey respondents' phones were serviced under a contract. Compared with those customers, respondents with no contracts made far fewer calls and rarely used data. Perhaps their simpler needs, and possibly lower expectations, account for the fact that no-contract respondents were more satisfied overall than those who had contracts.

No-contract service is generally most suitable for light use, but no-contract options are expanding beyond bare-bones basics. There are now more conventional cell phones that provide data services without a contract, a change from the past. And carriers that specialize in no-contract service, including Virgin Mobile and Boost Mobile, are offering more smart phones. Verizon and T-Mobile now offer most of their phones, smart and regular, with or without a contract. But some marquee smart phones, notably the iPhone from AT&T, are still sold only under contract.

Phones usually cost more when they're bought without a contract. That's because there's no subsidy from the carrier, as there usually is when you sign a contract. But with a contract, a portion of the fees you pay every month is used to "pay back" the company for that initial break. With a no-contract phone, there's no payback, and monthly fees should therefore be lower. For example, T-Mobile gives you a break on the price of the monthly plan when you buy a phone without a contract; Verizon doesn't.

The big-name carriers are offering more no-contract plans and phones—sometimes under separate brands, such as Sprint's Boost and Virgin—but smaller no-contract specialists have made their plans look more like contract plans. Carriers such as Metro PCS and Virgin Mobile offer unlimited monthly plans in addition to pay-as-you-go service. Consumer Cellular has "postpaid" billing at the end of the month, rather than the prepaid billing that's been the norm for no-contract cell service.

Because what counts most is whether you're locked in by a contract, we've separated our Ratings into contract and no-contract service.