You’ve probably noticed a lot of new cell phone companies popping up recently. Most of these are known as MVNOs, or Mobile Virtual Network Operators. What the heck?
Basically, MVNOs are retailers that buy voice and data coverage from the giant companies we all know. AT&T, Verizon, Sprint, T-Mobile and others own the cell phone towers and something known as spectrum, or airwaves through which our communications flow. Most of this spectrum is reserved for their own customers, but some is made available to the MVNOs, who buy it at wholesale rates. It’s then sold to you at a deep discount.
What’s so great about these new players? Lots of things. They’ve turned the traditional contract-oriented business model on its head, and eliminated most of the drawbacks we associate with major cell phone providers.
Let’s talk about cost. You typically pay about half as much per month as you would with one of the Big 4. Virgin Mobile USA, which runs on Sprint’s network, offers plans starting at $35 a month. This plan includes unlimited data and texts and 300 voice minutes a month.
If you talk more than that, the industry standard for unlimited everything is $45 a month. That’s what Straight Talk, the best-known MVNO, charges for their plan. Depending on which phone you get with Straight Talk, you could be on any of the four major networks.
MVNOs operate on a prepaid business model, where you pay for service up front. They offer non-contract service, which means they darn well better provide good service and treat you well. If they don’t you’re free to kick them to the curb at any time.
Compare that with the Big 4, whose business model depends on slapping you with two-year handcuffs. You think they’re very motivated to provide service once you’re a prisoner?
The downside for MVNOs is that the phones aren’t subsidized. You have to pay real money for a new one – often $200 or $300 – depending on how fancy you want to get. The tab goes up to $500 or more if you want the newest iPhone.
For most consumers, that big upfront cost is downright scary. We’re used to getting a new phone every 18 to 24 months and paying no more than $200. Some can even be free, depending on promotions at the time. But that initial savings is easily eaten up with the higher monthly rates.
Let’s look at an example. At Verizon, you get one smartphone with 2GB of data for $100 a month ($110 after taxes and fees). You choose the Samsung Galaxy S III, which sets you back another $200. Total cost over two years: $2,840
Compare that with Straight Talk. You get unlimited talk, text and data for $45 a month. The closest phone they offer is the Samsung Galaxy S II for $350. Total cost over two years: $1,430
You’ll have to settle for the previous generation phone, but it’s always best to avoid state-of-the-art anyways. Even with the higher upfront cost you’ll pay exactly half with Straight Talk. The same is true with any of the other MVNOs.
My contract with AT&T expires later this year. I’m excited to explore the non-contract options over the coming months and see what’s out there.
It’s never been easier to escape the clutches of a two-year contract. The savings are real. What would you do with $1,400?
[Note: If you're curious, Wikipedia has an excellent list of MVNOs and which major network they're on.]
See also: Low-Cost Options for Cell Phone Service
Photo by sciencedaily.com