No Strings Attached

For subscribers, signing a contract doesn't necessarily mean giving up control.

Requiring customers to commit to a service package for a year or more was one marketing strategy that helped the wireless industry take root in the United States, and it continues to be the modus operandi for most wireless-service providers. However, a small but growing number of companies have made "contract" a dirty word.

Understanding the differing views is a bit of an exercise in surveying the old and new guards of telecommunications. The majority of the Bell companies, including BellSouth Cellular and Bell Atlantic Mobile, require contracts on the majority of their wireless services. Meanwhile, several start-ups either have shunned contracts altogether or use them sparingly.

In the past, the hook for signing a contract was a cheap or free phone. The wireless-service provider still could make a business case for heavily subsidizing or giving away a phone because that subscriber was a guaranteed revenue stream over the life of the contract. Today, although subscribers often pay $100 or more for the phone but don't have to sign a contract, they're usually still bound by a de facto contract: That phone likely won't work on competitors' networks, and churning means buying a new phone.

The debate over contracts also has been dragged into the public eye via ad campaigns from AT&T Wireless and Sprint PCS, which strongly argue the pros of their positions and the cons of competitors' packages.

Wireless-service providers that require contracts say that customers don't really care about signing on the dotted line as long as the price of a given service package is right. Those that eschew contracts claim that customers prefer a straightforward approach with no strings attached even if it means missing the deal of the year.

Sprint PCS fits squarely into the latter camp. From its 1996 launch, it hasn't required contracts on almost every plan. The company emphasizes the no-contract angle in its ads, and although it doesn't offer any data to support its claim, Sprint PCS believes that the no-contract policy is partly responsible for its quick and steady gains in market share: one million during the past quarter alone.

"We wanted to do a couple of things when we started offering service," said Tom Murphy, Sprint PCS spokesman. "If you go back to 1996 and look at the wireless landscape, there were generally two companiesper market with relatively high costs (and) low minutes of use, and consumer use was low. We looked at things that would make wireless more consumer-friendly."

The Customer Is King
One of those things, Sprint PCS decided, was giving consumers the freedom to jump in and out of a plan while still getting what they believed to be a good deal. But despite its distaste for contracts, Sprint PCS occasionally has jumped to the other side of the fence.

The company has offered a few promotions where customers get a lower-than-standard rate if they sign a 1-year contract, but Murphy noted that such deals have been few and far between. There were no such offerings during either of the past two quarters, and Murphy couldn't say whether another was coming down the pike.

"There's no such thing as a free phone," Murphy said. "We've never gotten into a bait-and-switch situation. Generally, if someone says you can have a phone for free or a penny, it's too good to be true."

Not so, says AT&T Wireless, which requires contracts for all of its other plans, including Digital One Rate, except for prepaid, phone-in-a-box offerings.

"We have a great offer, but at the same time, we want customers to make a commitment to us in terms of staying an AT&T customer," said Dan Youmans, AT&T Wireless spokesman. "We make sure that the customer gets a great deal, but we also want to make sure we are able to keep them."

One surprise is that AT&T Wireless doesn't get much customer feedback for or against contracts.

"People expect contracts," Youmans said. "It traditionally has been the way most wireless companies work. They recognize there may be a situation where they are getting a really, really good deal, but there is some expectation of commitment."

Omnipoint spokesman John Grotland concurred. "The truth of the matter is, if the deal is good enough no one really minds signing a contract," he said.

When a Contract Isn't a Contract
Requiring a contract is one thing; enforcing it is another. More often than not, when a person signs up for wireless service for the first time, he assumes that he'll use it mainly for emergencies. But as he becomes more comfortable with wireless, and it becomes part of his lifestyle, usage generally goes up, and he might quickly outgrow his original rate plan. Forcing him to honor the remainder of that contract could result in a disgruntled subscriber and a missed opportunity to upsell to a plan that's a better fit for that subscriber and more lucrative for the service provider.

For example, if an AT&T Wireless customer wants to switch to another plan, Youmans said that they'll work with that customer.

"If someone comes to us and says: 'My situation has changed. I now roam a lot more than I used to,' then we will work with them to make that happen," Youmans said. "But at the same time, we are not going to let someone easily out of their contract. They've signed it and made a commitment. It's a 2-way street like with any other contract."

AT&T Wireless offers a 30-day grace period during which customers can switch plans, and those who elect to switch are charged only for the minutes they already have used. Omnipoint and others include a similar grace period during which customers can change plans or drop their service altogether.

The no-contract camp generally is no less black-and-white. Powertel, which has aggressively pursued the consumer market with its no-contract strategy, last year introduced a 1-year service agreement that gives customers an additional 50% of minutes over their current plans.

Joe Patterson, Powertel spokesman, said the contract offer has been well received and is a marketing tool primarily for converting long-time existing customers who already are happy with the company's service.

"It's also a good option for folks who may be buying a second phone or who have passed on a good word about Powertel to family and friends," he said.

As Powertel and others see it, there's a big difference between requiring a customer to sign a contract to receive service and offering a contract as an option.

"One thing that has really irritated consumers is they have to sign a service agreement and get locked in before they feel comfortable with the service," Patterson said.

Olson (catholson@aol.com) is a freelance writer based in Alexandria, VA.