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Examining Prepaid Subsidies for Basic Phones in the United States

by Alex Fuller | Nov 06, 2012

Using our PriceTRAX database, we have discovered an interesting trend concerning the retail price subsidies for basic handsets on certain US operators. For some models there is a significant difference between the price paid on a month-to-month contract, the price paid for a replacement device and the price paid for an unsubsidised device without a contract.

The initial discovery was made when examining pricing for the LG Extravert. At the time of writing, the model can be purchased from Verizon’s online store on a 2 year contract for $99.99 or on a month-to-month contract for $209.99. Meanwhile, Best Buy sells the same model either as a replacement device for a rather hefty $299.99 (or for $29.99 on a 2 year contract) or as a stand-alone, prepaid "No-Contract Mobile Phone" for just $79.99. Weird?

Two options for purchasing the same device as they appear in the same cart on the Best Buy website. Top – as a Replacement Device, below – as a No-Contract Mobile Phone

Furthermore, this is not limited to a particular model or retailer. The Samsung Gusto 2 is available from Verizon for $79.99 on a 2 year contract or for $199.99 on a month-to-month contract. RadioShack, however, sells the device as a "No Contract Phone" for less than either of these options at just $19.99. The same model is also available from Best Buy on a 2 year contract for $19.99 or as a Replacement Device for $249.99.

Similarly, over at Sprint, the Samsung Array M380 handset is available through Sprint’s website on a two year contract for $19.99, with a listed "regular price" of $219.99. However, it is also available as a "No Contract Mobile Phone" on Boost Mobile (a Sprint subsidiary that provides a solely prepaid service) through RadioShack for a mere $39.99.

One thing these 3 devices have in common is that they are all CDMA-based non-smartphones, commonly positioned more towards prepaid customers.

Confused? So are we! Why would anyone pay $199.99 for a Gusto 2 from Verizon, when they can buy it for $19.99 at RadioShack with no contract? One possible explanation can be found in Verizon’s policy that only allows prepaid phones to be transferred to a post-paid contract 6 months after the phone is activated. This prevents customers who may have lost or broken their Samsung Gusto 2 from trying to avoid the hefty $249.99 price for a replacement by simply popping down to RadioShack and purchasing a prepaid version for just $19.99.

To try the PriceTRAX database for yourself click HERE

Alex Fuller

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