Verizon drops call for contracts

Heeding the call of competitors, Verizon Wireless eliminated two-year contracts from its business model — ending years of subsidized cellphone plans.

Verizon’s decision is similar to T-Mobile’s contractual changes in 2013.

“A while back, they eliminated subscriptions and contract limitations,” said Noel Greis, co-director of the Center for Logistics and Enterprise Development at UNC’s Kenan-Flagler Business School. “In fact, I was one of the people who switched from Verizon to T-Mobile because of that.”

Despite the increase in upfront cost, she said additional charges were being incorporated in customers’ contracts.

“It wasn’t like Verizon was giving away the iPhone for free,” Greis said.

David Ardia, an assistant professor at the UNC School of Law, said the cost of phones without contracts might be cheaper in the long run.

“Studies have shown that American consumers pay more over the life of the contract for the cost of the hardware than they would if they purchased the hardware at the front end on their own,” Ardia said.

This model without contracts has long existed outside of the country — without the subsidies that U.S. companies offer their patrons.

“It’s our view that this is the way it’s done, but in other places, consumers expect to purchase the phone separate from its contract,” he said.

But the lack of contracts has not deterred consumers from purchasing new phones. This year alone, iPhone sales have doubled in Germany, Korea, Malaysia and Vietnam and have increased more than 45 percent in several countries including Italy, Spain and Turkey.

Under this new sales model, Ardia said cellphone companies can make the process more transparent for consumers.

“They will understand more clearly what the cost is of the hardware and what the cost is of the service,” he said.

Ardia said without government regulation, Verizon’s decision is unlikely to be overturned by the courts.

“It is very unlikely that customers of Verizon would have any chance of suing Verizon for this change,” Ardia said.

Sophomore Nikki Newman said without contracts, the cost of purchasing a new smartphone would be too high.

“Subsidies would definitely help,” she said. “I have to pay for tuition here, too, so I can’t afford that much.”

Despite the public’s mixed feelings, it is expected that other companies will follow suit.

“I see things moving more in this direction,” Greis said. “It does create a lot of frustration for folks when they have to be limited and locked into contracts.”

state@dailytarheel.com