What Does ‘No Lock-In Contract’ Mean?

What is a phone contract?

Traditionally, phone contracts are contracts in which individuals procure a mobile device at a much smaller initial outlay than buying it outright. Once procured, the contracted individual will pay for the device over a stipulated period of time – usually 12 to 24 months. Since phone contracts are often provided by telecommunication companies, they come alongside plans on calls, texts and data.

What is a lock-in phone contract?

A lock-in phone contract is an agreement entered into by a teleco and a subscriber, in which the former provides the latter with a mobile device. Over a stipulated period of time, the subscriber must pay off the mobile device as provided by the telco.

This sounds like a pretty simple process, however, there is one catch; the mobile device can only function with a sim card provided by the telco. In essence, the subscriber is ‘locked in’ with the telco that has provided the device.

What does ‘no lock-in contract’ mean?

A ‘no lock-in contract’ is essentially the opposite of a lock-in contract. In these contracts, products and services provided by the telco don’t hold the subscriber in stiffly. The subscriber is at liberty to switch between products and services depending on their needs at each and every moment.

Nowadays, many of Australia’s major telcos are ditching lock-in contracts for ‘no lock-in’ contracts as this affords their subscribers more flexibility and ease.

Vodafone became the first telco to rid itself of lock in contracts in August 2017. Eventually, Telstra followed suit in 2019 with a massive overhaul on the structure of its phone plans and electronic products. Announcements concerning this overhaul were first made in 2018, however.

Types of no lock-in contracts

No lock-in contracts are designed to give subscribers more flexibility and ease. However, not all ‘no lock-in’ contracts offer subscribers the same set of features. Here’s a close look at some types of ‘no lock-in contracts’:

  • Month-to-month SIM Only plans
    Month-to-month SIM Only plans allow subscribers to decide their phone plan on a monthly basis. These plans come in both prepaid and postpaid packages.

    With a month-to-month SIM Only plan, subscribers are allowed to add plans to existing mobile devices as opposed to having to procure the device from the telco they are subscribed to. Here are some month-to-month plans available in Australia.

Examples of month to month and other types of plans being compared on Whatphone.com. Source: Whatphone

  • Prepaid SIM Only plans
    The term ‘prepaid’ simply means the plan was paid for prior to being used. With prepaid SIM Only plans, the subscriber is required to pay for the service before access to it is granted, which eliminates bill shock from overages.Prepaid SIM plans last for varying periods of time; sometimes as little as a few hours and as much as 30 days. The time frame for the service is solely dependent on the individual and what they choose to subscribe to.You can compare some prepaid sim plans here.

Long term prepaid plans

Long term prepaid plans are similar to prepaid plans, except for the fact that they are designed for lengthy periods of time. In a similar manner to prepaid plans, the subscriber will be required to pay for the service before access is granted to it. Long term prepaid plans can last anywhere from 3 to 12 months.

Final words: What are the benefits of no lock-in contracts?

By removing lock in contracts from their plan ranges, many telcos have opened up an entirely new dynamic of benefits to their subscribers. Some of these benefits include:

  • Flexibility — Subscribers are now at liberty to tweak their mobile plans based on whatever momentary needs they have.
  • Less cost incurred — With flexible contracts, subscribers can easily monitor their expenses with the network, morphing them into whatever they need them to be at any point in time.

Choosing between a lock-in or no lock-in contract is a matter of choice. A lock-in contract might provide more features and inclusions than a no lock-in contract, simply because the subscriber is tied down. In other words, such contracts are more attractive in an effort to lure the customer. That being said, their attractive nature might create value for the customer; more value than a no lock-in offer.

However, a lock-in contract’s attractive offer may become less valuable over time. These contracts are often lengthy, and phone plan costs tend to reduce over time, while their features and inclusions tend to increase. Therefore, 12 months after entering a lock-in contract that was initially attractive, other no lock-in contracts might emerge that offer much more attractive deals and value. At that point, the customer is stuck in the lock-in contract and is unable to leave.

Thus, as stated, the decision is solely dependent on the customers’ needs. Both have advantages and disadvantages.

Sources

 

Neil Aitken

Having worked in 3 countries for 4 telcos on both voice and data products, Neil is in a position to give you the inside track. Get beyond the marketing messages to the best plan for you.