Industry Myth: The "FREE" Upgrade

We’ve talked at length about contracts, discounts, upgrades, and phone pricing until we got blue in the face.  But there’s one phrase in this business that we have yet to spend much time on:  the “free” upgrade.

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On PhoneCan, we have covered many aspects about phone pricing, upgrades, and contracts:

1) Phones actually do cost more than the consumer typically pays for it.
2) Phones are discounted with a contract.  That also means they are not discounted when sold without a contract.
3) The phone business does not match traditional “cost + profit = retail pricing” models.
4) You have the choice of signing a contract or not.  Sometimes, you even have a one-year contract choice.
5) When you sign a contract, that means you’re agreeing to stick around for the term of the contract.  If you choose to not stick around, you’ll pay a fee to terminate your contract.  Hate it as you may, but you agreed to those terms.
6) And upgrade means you’re signing a new contract.

But what we’ve only lightly covered is the phrase: free upgrade.

Where Does the Free Upgrade Come From?

There’s no clear indication as to where the phrase came from, but we do know it comes from one of two things.

First, it’s always been common practice to charge an activation fee at the beginning of service, but there was also a time where every carrier charged the same fee when buying any discounted phone.  Some carriers still charge activation fees on upgrade, but others do not.  In many cases, a “free” upgrade simply meant there was no upgrade (or activation) fee.

Second, and much more commonly, many times people got a “free” phone when they signed up for service.  In other words, they didn’t pay up front for a phone because they signed a contract.  “Free” phones, or rather, phones with no upfront cost, were used to draw customers into a store.  They were basic phones, often the kind that didn’t last a full two years, or they were older models on the way out.  In any case, they existed merely to pull someone into the store so they could be sold on something else.  Over the years, people came to expect a free phone every time they came in, even if they didn’t actually “purchase” one.  Again, this scenario confuses more consumers than fee-free upgrades.

In either case, the reality is that “free” upgrades never really existed.  Sure, many customers paid nothing up front for a phone, but they always ended up paying off the cost of the phone sometime during their tw0-year contract.

The Confusion, Today

There are a core group of people who still believe that a free phone awaits them in any store.  The reality is different.  That business practice went to the wayside about five years ago, and many consumers are in some sort of time loop trying to find something that no longer exists.

That’s not to say that you can’t get a free phone these days, surely it happens.  But does it happen all the time, with multiple models?  Not really.  Does it happen with the most desired phones?  Never.

What it does mean is the basic Nokia-style bar phone that only made calls, sent awkward texts, and played snake are now sitting in the Smithsonian.  Those days are long gone.

Today’s phones are miniaturized computers.  2% of the function of these phones matches the entire function of a free phone from the early 2000s.  I wouldn’t go to Best Buy assuming I can find a nearly-free computer that simply does word processing, calculator, and solitaire.  They have the capacity for so much more, and are priced according to those abilities.  And in today’s wireless business, a huge number of these newer phones cost the carrier upwards of $400 or more.  Free phones, back in the day?  They cost the carrier about $100.  Why do you think they were free in the first place?

A Change is Needed

Change comes either slowly or quickly.  In this business, everything seems to change very quickly.  But unfortunately, a large number of consumers are stuck in the previous decade.  The term “free upgrade” needs to be phased out, and while most of it has, the little bit that remains is frustrating.

A customer comes into a store and asks for the free phone.  There is none.  They go somewhere else.  Maybe they find one, in a reseller store or online.  But they don’t dig into what they’re actually getting, which is typically a model from two years ago.  Or perhaps it was used and refurbished (or not).  Or it was a complete failure as a phone, such as with the Palm Pixi and Microsoft KINs.  But the truth is, a free phone today should come with the question, “why?”

The more consumers question why something would be free, the more hope there is for inevitable change in this business.  The decade old mentality is what has kept the wireless business in it’s current state.  If a consumer wants change to monthly pricing and contract terms, they need to do a top to bottom investigation of their own perceptions of the wireless industry.  If you still hold on to the notion that there’s a free phone for you on every corner, you’re one of the people holding us all back.

A change is needed - and that change starts with you.  The misconception of the “free” phone stimies change.  Those kinds of perceptions keep us paying our the nose for wireless service.  It’s time for consumers to “free” themselves of several archaic notions, including the $0 phone deal.