Does paying your smartphone’s tab get you off the hook?

By: Ted Kritsonis

August 12, 2014

People talking phoneTo offer alternatives to hated phone contracts, some carriers have since launched “tab” options where the balance of the phone subsidy can be paid off much faster than a two-year contract. But if that tab is paid off much sooner, does it spell the end of the contract, and does it automatically include a discount on a monthly plan?

Phone contracts are a contradiction in that they are the least expensive upfront cost to get a smartphone, but are generally despised for the protectionism the carriers attach to them. The contract’s primary purpose is to ensure cost certainty — in other words, to recoup the cost of giving you a phone at a fraction of the outright price.

While convenient, the issue with this model was that it shackled subscribers to a contract over the duration, even though they might have been able to pay off the balance sooner. Eschewing contracts to draw in dissatisfied customers, newer entrants like Wind Mobile were the first to offer tabs as a way to pay down a phone’s cost. It was more an amortized financing plan than a contract, since a certain amount of the monthly bill was allocated specifically to repayment. Lump sum or full payments could be made at anytime to settle it.

The incumbent telcos, particularly Rogers and Telus, saw an opportunity and began offering their own variations on the same theme. But they don’t make tabs and contracts mutually exclusive, meaning that you still have to sign up for two years to be able to merely have the opportunity in paying the balance of a phone in a shorter time.

In the case of Rogers’ FlexTab, the tab is defined as the difference between the outright price of the phone and the contract price you paid. The balance is paid off in monthly increments for 24 months until the end of the contract. There is no restriction on paying off the balance early. You can be six months into a contract and have the money to pay it all off in one shot.

Here’s where things can go in a few different directions, giving you three options: upgrade to a new handset on a new two-year contract, move to a month-to-month plan not under contract or cancel your subscription altogether. There are no fees for cancelling.

If you choose to go month-to-month, you could sign up for an eligible in-market plan, and receive a BYOD (Bring Your Own Device) discount of up to $10 per month on select Share Everything plans.

With Telus, customers have two options: they can sign up again for a two-year plan with a new device, buy a new phone outright or bring their own device (BYOD). Customers who pay off their device balance can move to the lower BYOD plan, which starts at $40/month for unlimited talk and text. Opting for a new device on a new SharePlus contract, Smartphone plans start at $60/month and Smartphone Lite start at $50/month. Note that these starting prices don’t include data, which is an extra cost. There is also no extra fee for cancelling.

Not only that, but customers would have to request to be moved to the cheaper month-to-month plan. If you don’t say anything, you would continue paying the inflated monthly fee, even though the subsidy has been covered and the contract ended.

Bell doesn’t really market its tab plans, but it doesn’t mean customers can’t do the same. Customers with a subsidized device on a contract plan can pay off their device balance before the end of their contract. If they do so, they can contact Bell and request to migrate to a month-to-month or BYOD plan. Of course, this migration needs to be requested rather than be expected, so if you are paying off the balance, call Bell and negotiate next steps.

Wind Mobile can probably lay claim to starting the tab trend, and has gone even further through its “pay-off promise”. Wind usually takes 10% of the pre-tax bill as credit towards the balance of a phone that was purchased at a subsidized price. For example, a $40/month plan would amount to $4 being put towards repayment each month.

Over a two-year span, that only amounts to $96 in repayment. Wind’s pay-off promise wipes out the remaining balance completely after 24 months, leading to a savings of $250 over that time. No other carrier has been able to match this kind of offer, where a portion of a phone’s subsidy is basically written off without a contract having existed in the first place.

Tabs are still better than just sticking to a contract, but don’t bet on your carrier to lower your bill automatically after you’ve paid off your phone’s balance. Call them and see what they offer. If you’ve been with your carrier for a number of years, that loyalty could be rewarded when you’re not on the hook with a tab or contract. Threatening to cancel and asking to talk to retention may get you a better deal.

Buying your phone unlocked and shopping around may be the best way to go, but it’s even better if you have an unlocked handset and have been with the same carrier for some time. You save more money over the two-year duration of a contract than you would if you stuck to the full term and were limited only to the monthly plans they offered you.

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