Carriers offer phones with a new 2 year contract at a subsidized price. Most of us know all about this. For example, the Nokia Lumia 900 is $449 off contract and $99 with contract. Sometimes you get a huge subsidy, sometimes a smaller one, depending on the phones the carrier and manufacturer are eager to promote. When you go into a carrier corporate-owned store the rules and pricing are pretty clear. Start a contract, get a subsidy. End that contract after your 14 or 30 day trial period and you’ll pay an ETF (early termination fee), where you pay the difference between the retail and subsidized price of the phone. Why? The carrier sells you a phone at a discount because they’ll make considerable money off you during the course of your 2 year contract. That’s why they give you the large discount. If you don’t keep that contract, they’d lose money selling you a $500 phone for $199 or $99. Simple.
What’s an Authorized Retailer? Aren’t I Shopping at a Verizon Wireless Store?
The rules can be different when you buy from a third party retailer, otherwise known as an “authorized retailer”. A corporate store is a carrier-owned and operated store. It doesn’t say “authorized” or have a funny, catchy name. The sign says “Verizon Wireless” or “T-Mobile”, not “Sunny’s Cell Phones and Service” with “authorized reseller” underneath. Look for that “authorized reseller” under the “Verizon Wireless” or other carrier logo on the sign: it’s the giveaway that you’re not at a corporate store (it can be hard to tell). Mall kiosks, RadioShack, Amazon, Best Buy and Frys are all third party authorized retailers. The carrier pays them a commission when you sign a contract and get a phone through that authorized retailer. Typically the commission won’t kick in until you’ve passed your trial period, or longer. Sometimes months longer…
When Buying from an Authorized Retailer, You May Sign Two Contracts, Not One
Third party resellers often have really enticing deals, especially around holidays. Say Verizon is selling a Droid Whizbang smartphone for $299 with contract; RadioShack might be selling it for $199. Amazon has really good prices on cell phones with contract and might sell the Whizbang for $50. So why buy from the carrier when they’re not the least expensive? Ah, the fine print. Each reseller has their own agreement, and they make the rules. That means you’ll enter into two contracts: one with the carrier and one with the authorized retailer. Each contract can cost you serious money if you change your phone number or don’t keep the line in service.
Example: RadioShack says you can’t change your service for 6 months or they will charge you the retail price of the phone minus the original amount you paid them for the phone. They can and do inflate the retail price of the phone, so your $449 retail phone might become an $850 retail phone. It’s capitalism: they can set whatever price they like, and that retail price might not appear on your agreement.
Amazon has a pretty strict policy too, but they make it somewhat clear on their website (honestly, it could be more obvious). Best Buy currently doesn’t add any draconian terms onto your contract. But all this might change tomorrow, and you’ve got to keep on your toes to save that $100, lest it kick you in the pants and cost you several hundred dollars more. Is it worth it? Probably not, unless you’re absolutely sure you won’t want to change your cell phone plan, change your phone number and that the carrier’s service will remain solid for at least 6 months.
You might think: no problem, I don’t intend to change my number, drop the line of service and the carrier’s coverage would never degrade. Wrong.
1) Many folks start new lines of service with a new phone number to get the maximum discount. The new phone number might be a real pain: in these difficult times lots of folks have trouble paying their bills and eventually end their cell service or change their number because they’re receiving lots of calls from collection agencies. We’ve gotten at least 20 lines with this problem over the past two years among the review unit phones we receive.
2) Your new number might be 1 digit different from the most popular Chinese take-out restaurant in your city. All those calls for Broccoli Beef and Wonton soup area using up all your plan minutes. So you change your phone number.
3) These are hard times. You lose your job or take a pay cut and decide that second phone line wasn’t such a good idea. You need to terminate it.
Even if you keep your service but change your phone number, you might trigger the authorized retailer’s penalty since they may track phone numbers rather than your carrier-assigned account number. You may have to spend serious quality time with the retailer to prove to them that you maintained service and simply changed the number. It’s a lot of hassle, and it probably isn’t worth saving $100 up front on the phone. If you fail to convince them, it could cost you $250 to $700 additional as a surprise charge back on your credit card.
You’ve Got Two Contracts Now for One Phone, With 2 Different Return Periods. Gotcha!
Depending on your state of residence and carrier, you may have 14, 15 or 30 days to evaluate your phone and service and return the phone without paying an ETF to the carrier. The authorized reseller may have a different return period. Thus you’re in conflict because adhering to one will get you trouble with the other. In our state, we have a 14 day return or trial period when buying a Verizon contract phone. AT&T has a national 30 day policy rather than going with the state-mandated minimum trial period. See, you’ve got to keep track of each carrier’s policy and your state’s policy too.
The store might have a 30 day return period. If you have trouble with your service or phone, the carrier may ask you to swap the phone. If issues persist, they may open a network trouble ticket to check towers in your area. These measures will often take longer than 14 days, so you’re stuck with the $350 smartphone ETF if things don’t work out. Even though you have 30 days to return the phone to the authorized retailer, you’re paying $350 to the carrier too. Ouch. Was it worth saving $100 up front? Nope.
When you Buy a Phone from Walmart.com or RadioShack.com, You’re Not Actually Buying from Those Companies
When you buy a phone from a brick and mortar store’s website, you may actually be buying the phone and signing a secondary agreement with a totally different company. Walmart stores sell cell phones and contracts. Walmart.com uses a large online cell phone dealer called Letstalk to sell you phones via their website. RadioShack.com uses a company called Simplexity (the parent company of Wirefly.com). If you buy the phone online, the store probably can’t help you with any issues you might have. If you ask the store sales associate about their contract and policies, they’ll tell you about their physical store rules. These policies may be completely different from their online partner’s policies. Confusing, right?
Don’t Believe Sales People, Ever
Recently, I had an incident when purchasing a phone with service from RadioShack in my area. The sales people (all apparently fired since my transaction) told me the fine print about additional charges if service wasn’t maintained for 180 days was there to catch scammers who purchase discounted phones without activating, thereby bypassing the ETF. What they told me was not true and cost me $850 in RadioShack charges to my credit card. When I appealed to RadioShack HQ, they said that they couldn’t verify the conversation since the sales associate had been fired and that the printed agreement stands, not anything sales people tell you.
In the end, an authorized retailer deal can still be worth it, if you’re willing and able to keep track of all the fine print. If you want to buy from a third party dealer, I do suggest that you never buy a phone and switch carriers simply because you have a crush on that cool new phone. You have no idea how good that carrier’s service will be or if that phone will live up to all the hype; but you might be locked in for a half year. Stick with a carrier you know and have had success with, thus reducing the chance you’ll need to terminate service and trigger two contract penalties.