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Alltel offers 1-year contracts with phone prices the smae as 2-year

There is one universal truth when it comes to cellular contracts in the U.S. -- they are normally two years in length. In Europe, wireless customers routinely get better deals than Americans with phones as popular as the iPhone offered for free with contracts as short as a year and a half.

Alltel has made a move that will set it apart from its peers in the U.S. wireless market. The company announced today that it would be cutting the length of its wireless contracts from two years to one year in an effort to entice more consumers to its network. Despite cutting the length of the contract required for subsidized phones in half, Alltel says that it will not up the price of its phones to compensate.

Alltel's Paul Bowsersock said in a statement, "Wireless customers have been waiting for an option like this for a long time. With a one-year contract option, customers can take greater control over their wireless experience, having the flexibility to choose their contract length and the latest innovative handsets at the most competitive price possible."

InformationWeek reports that mobile carriers contend that a two year contract is needed to recoup the cost of the subsidized hardware. It’s unknown if Alltel's move will spur other major carriers like Sprint, AT&T, and Verizon to offer similar plans.

Alltel may lack a buzz generating handset like the Palm Pre or the iPhone, but the provider does offer handsets like the Blackberry Pearl Flip and Treo Pro. Verizon purchased most of Alltel's assets last year but Alltel still has about 2.2 million customers in 22 states.

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Why hasn't it happened?
By ice456789 on 6/5/2009 10:21:21 AM , Rating: 5
Two of the greatest drivers of customer service complaints in the cell phone industry are the phones themselves, and the contracts. Those two issues alone cause more than 50% of customer service calls in my experience. It seems a better business model is needed.

Cell phone carriers need to separate themselves from the hardware. Being a Verizon customer, if I have a problem with my LG Dare, I call Verizon. If my wife has a problem with her Samsung Omnia, we call Verizon. And yet if I have a problem with my TV, I don't call Directv. I call the manufacturer. I can definitely see why cell phone carriers started contracts with discounted phones. It began a decade ago when very few people had cell phones. To remove the barrier to entry providers struck a deal with manufacturers to subsidize the cost of the phone by locking in the customer to a service contract. Thus the cost of the phone was defrayed and the barrier to entry was removed.

But we're in a different time now. Almost everyone has a cell phone. There is no barrier to entry into the market because everyone is already a consumer in that market. It's time for service providers to drop the phones, and drop the contracts. You buy your phone at any store you choose, and you can finance it if you so desire. Hardware providers are your point of contact for everything hardware related just like with most other electronics in your house. You only contact the service provider if you want to change your service or have issues regarding your service. Because the cost of the phone is no longer a factor in the price of service, you can expect your monthly bill to be cut significantly. Calls to customer service are cut by more than 50%, raising customer service levels quite a bit.

The upside to the service providers is obvious; the downside means they will compete in a fair market. With customers no longer locked in for two years, service providers will compete on price and quality of service. Many current companies would dread this (looking at you Sprint), but as a consumer it would raise our expectations and our buying power.

All it would take is 1 company to remove contracts and let people buy the hardware elsewhere, and other companies would be forced to follow suit. Which would you rather go with... Company A offers you a $250 discount on a phone with a 2 year contract and a $100/month bill. Company B offers no contract and a $60 bill for the same service and you pay full price for the phone. I think the vast majority would go with company B.

RE: Why hasn't it happened?
By Lifted on 6/5/2009 10:52:50 AM , Rating: 5
I have to agree. After leaving the states where I was paying $40 - $50 per month for basic service (after taxes, fees, etc.) I was amazed to find I can buy any phone I want, pop in any SIM card I want - I have several - and spend less than $10/month on calls. I pay for what I use, not for some "package" that is only designed to screw you, but sure looks nice compared the 40 cents per minute overage fees. I think I currently pay anywhere from 1 - 3 cents per minute depending on time of day, landline vs phone, same carrier or different, current promotion, etc. Some calls are 3 cents per call, period. Inbound calls - NO FEE, just as it should be!

The US baby bells are raping people between their small selection of crippled phones, 2 year contracts, and overpriced monthly plans. What are consumers to do? It's not like people are going to stop using their cell phones in protest. Complaining will obviously get you nowhere since mobile phones are a necessity now and they now you won't go without it. A national standard on cellular technology would be a good place to start. Removing the tie between phone and carrier is another. Will writing to your Congressman help? Depends. How much do the phone companies contribute to their campaigns? :)

RE: Why hasn't it happened?
By Samus on 6/5/2009 3:26:00 PM , Rating: 3
there's no doubt the US has the lowest quality and most expensive cell network (yes, more expensive than Japan) on the planet. a lot of people would say its because they (cell providers) are unregulated, and when you consider the closely regulated nature of european and asian providers, I tend to agree. alas, they are all profitable in the end.

RE: Why hasn't it happened?
By amanojaku on 6/5/2009 3:41:31 PM , Rating: 3
I agree with you that the cell phone providers are getting away with bloody murder in some cases, but there are other contributing factors. Namely, the size of the U.S. and the age of the infrastructure. The U.S. was one of the first countries to deploy the cell phone network, so other countries got the benefit of our experience. By the time we figured out what we were doing wrong it meant a lot of changes to the infrastructure, and that costs money.

Most countries are pretty small with densely populated areas. That's a good thing when it comes to telecommunications. You have more utilization in those areas, but you also have more utilization of equipment. When you spread people out you have a lot of underutilized equipment that costs money regardless of its use. 10,000 people with service amounts to small profit margins whereas 10,000,000 people in that same area means greater profits. In one NYC neighborhood I lived in Cablevision refused to provide cable services because I was the only customer; everyone else had DirecTV. It was only after a significant number of people called and asked for services that I was able to get it a year later.

RE: Why hasn't it happened?
By Solandri on 6/5/2009 4:19:44 PM , Rating: 2
The U.S. hands-off approach of letting the cell phone providers compete freely had one huge benefit. In Europe, the GSM standard helped interoperability and widespread acceptance early on, but it shackled everyone to TDMA technology (basically, each phone in a cell takes turns transmitting, even if they have nothing to transmit). In the U.S., cell phone providers built both TDMA and CDMA networks. (With CDMA, all phones can transmit simultaneously until the bandwidth capacity is reached, at which point you start getting dropouts.)

TDMA was fine for limited bandwidth applications like voice. But when data services were rolled out, CDMA had a huge advantage because the phones needing bandwidth that moment could use all the bandwidth the cell tower had that wasn't being used by other phones. With TDMA phones, each phone was limited to its tiny timeslice of the cell tower's bandwidth. So in the U.S., CDMA ended up winning marketshare, allowing the technology to be developed. This has culminated with GSM grafting a CDMA 3G data standard (UMTS) onto its TDMA network, and the successor to GSM being based entirely on wideband CDMA.

So basically, if the U.S. had followed Europe and let bureaucrats mandate a standard instead of letting the market decide, we'd be stuck with ~150 kbps data speeds for many more years, instead of the 2-20 Mbps data speeds available now with 45+ Mbps just around the corner.

I do think SIM cards are a great idea though, which is why I'm rooting for the (new) GSM to win over the current CDMA providers in the U.S. (Verizon and Sprint) who insist on locking you into a phone they resell with crippled features.

RE: Why hasn't it happened?
By croc on 6/5/09, Rating: 0
RE: Why hasn't it happened?
By Solandri on 6/6/2009 2:01:39 AM , Rating: 3
Yes CDMA's noise floor goes up with more users, effectively contracting its footprint. But that's a cell size and max capacity issue. i.e. This effect is taken into account when planning the cells and selecting the tower locations. A side effect of this is that if few or no people are using a CDMA cell (low noise floor), you can get a CDMA call through at a very long range. With TDMA, your range has a hard limit based on the length of the timeslice and the speed of light.

Also, CDMA's noise floor is caused only by other phone transmissions, so it does not go up if a phone is not transmitting (e.g. neither person in the call is talking at the moment). So if you have 100 phones making calls on a CDMA cell but nobody is talking, all the bandwidth is still available for (say) a data user to use. In TDMA, each phone owns its entire timeslice whether it's transmitting or not.

To draw a computer network analogy, say you have 5 computers sharing a single DSL line. CDMA is like letting all 5 computers use as much bandwidth as they need at any given time. If all 5 computers need bandwidth, they slow each other down to where each gets about 1/5th. But if only 2 computer need bandwidth and one of those only needs 1/10th of the DSL line, the other 9/10ths is available for the second computer. You don't have to do anything special to make this happen - it happens automatically as each computer transmits data as fast as it can get ack packets from the network.

TDMA is like limiting each computer's bandwidth to 1/5th of the DSL line. If only one computer is transmitting, it's still limited to 1/5th even though 4/5ths of the DSL line is sitting unused. To get around this, you have to significantly re-engineering the transmission protocols and add a lot of overhead for managing the bandwidth just to accomplish what CDMA does pretty much automatically. CDMA is just a superior way to share bandwidth for this application.

RE: Why hasn't it happened?
By croc on 6/5/09, Rating: 0
RE: Why hasn't it happened?
By Solandri on 6/6/2009 1:27:35 AM , Rating: 2
Australia has 80% of the US land mass, and less than 10% of the population. Yet we have on the order of 98% coverage for cellular networks, with at least two carriers available to the majority of those customers.

Have you tried looking at coverage maps of Australia vs. the U.S.?

Most of Australia's population is concentrated in a very small area. Only about 10% of the country's landmass has digital cell phone coverage. Canada is the same way, with close to 90% of the population living in a narrow strip bordering the U.S.

Contrast that with the U.S. where probably 70% of the landmass has coverage. Seems to me if the U.S. only had the level of coverage that Australia did (10%), our service costs would only be about 1/5th what they currently are.

RE: Why hasn't it happened?
By croc on 6/6/09, Rating: 0
RE: Why hasn't it happened?
By Solandri on 6/5/2009 4:03:38 PM , Rating: 2
Canada is more expensive. I got a job in Vancouver, and it was actually cheaper for me to add a $5/mo feature to my U.S. phone where I paid 20 cents/min for calls in and to/from Canada, than to get a separate Canadian cell phone (most of the moderate volume plans worked out to about 30 cents/min).

U.S. cell phone rates are higher because with the plans here, the cell phone owner pays all the costs. In Europe, the caller pays. So someone on a landline phone calling a cell phone pays a higher rate, thus subsidizing the cell phone user's costs. (The reason this difference persists is because most of the plans in the U.S. are a fixed monthly fee for a set number of minutes to/from anywhere. In Europe, calls are billed per minute or 6 sec increments.)

2 year contract
By DFranch on 6/5/2009 1:34:32 PM , Rating: 3
If the standard 2 year contract length is to recoup the price of the phone, how come the cost of the plan does not go down after 2 years? I would hang onto my old phone longer if the plan got cheaper after the contract was up.

RE: 2 year contract
By Icewind31 on 6/5/2009 3:09:55 PM , Rating: 3
They want you to buy a new phone of course... and be stuck for another 2 years...

RE: 2 year contract
By Solandri on 6/5/2009 4:25:08 PM , Rating: 2
Yeah, that's my beef with these contracts. If they want to provide you with a loan to give you the phone up-front, it should be structured like a loan, with monthly payments tacked onto your bill which end when the phone is paid off. Not hidden in the monthly service fees that everyone has to pay even if they own their phone free and clear.

RE: 2 year contract
By the goat on 6/8/2009 10:09:07 AM , Rating: 2
If the standard 2 year contract length is to recoup the price of the phone, how come the cost of the plan does not go down after 2 years? I would hang onto my old phone longer if the plan got cheaper after the contract was up.

Agreed! I didn't take the "free" phone when I signed up for my service. I'm using a friend's old phone with my SIM card. But I don't pay any less.

By FITCamaro on 6/5/2009 9:56:56 AM , Rating: 2
I thought Alltel was completely owned by Verizon now and that its customers were going to be rolled into Verizon?

RE: What?
By Spivonious on 6/5/2009 10:04:51 AM , Rating: 2
They were. My wife works in cell phones and laughs every time an Alltel commercial comes on.

RE: What?
By straycat74 on 6/5/2009 6:22:52 PM , Rating: 1
My wife works in cell phones

She must be tiny.

RE: What?
By amanojaku on 6/5/2009 10:16:42 AM , Rating: 2
Alltel is not a division of Verizon; it's a subsidiary. So it has different management, tax liabilities, and government regulation than Verizon. In fact, it's possible the two could be competitors in the same areas. Silly, yes.

By Creig on 6/5/2009 12:51:00 PM , Rating: 2
"smae"? How did that one ever make it past your spell checker?

By Screwballl on 6/7/2009 11:43:41 AM , Rating: 2
heh I thought the "smae" thing.... 2 days later and it is still there... so they must have posted this then took the rest of Friday and the weekend off.

They don't have any good phones
By ratbert1 on 6/5/2009 10:00:03 AM , Rating: 2
I was an Alltel Customer and part of the group that got bought out by Verizon, and though my contract was up a few months ago, I did not renew or get new phones until my wife and teenagers could get phones from Verizon(LG Voyager and the Storm) which finally happened this week. If Alltel had phones people wanted, believe me they would not be doing this.

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