Why wireless service plans are like 'Hotel California'

Customers check in, but rarely check out as carriers get better at keeping subscribers from switching to rivals.

By Aimee Picchi Aug 1, 2013 12:29PM
A pedestrian talks on a cellular phone as she walks by a Verizon Wireless store on April 19, 2012 in New York City (© Justin Sullivan/Getty Images)New statistics show that wireless carriers are by and large getting better at keeping customers from switching. Only about 1% of subscribers of Verizon (VZ) and AT&T (T) actually ditch their plans for rivals, reports The Wall Street Journal. 


That's because more customers, many of whom are locked into two-year deals, are also on family or business plans, which are complicated and therefore more difficult to leave, the piece noted. 


Because of that low "churn" rate, the top carriers are increasingly fighting battles over a small group of potential customers. The top four service providers added only 3.3 million customers last year, according to an estimate from UBS. That's out of the country's 326 million wireless subscribers. 


"It kind of feels like a trap," AT&T customer Rhonda Green told The Journal. She had considered switching because her service was spotty, but found she had four months left on her contract and didn't have the money to pay a penalty to break it. Instead, she got a new phone and renewed her service with AT&T.


Breaking a contract without a termination fee is difficult, requiring a customer to find someone who is willing to pick up the remaining time on the contract or else finding a rare loophole. 


One anonymous Verizon Wireless store manager wrote on Reddit earlier this year that one way to get out of a contract is if a provider doesn't live up to its end of the contract, such as failing to offer reception. 


Wireless companies are also investing in networks by upgrading to LTE technology in an effort to win customers on performance. T-Mobile (TMUS) added Apple's (AAPL) iPhone to its lineup, but it's further behind in offering its LTE network than bigger rivals like Verizon. 


Meanwhile, those plans are also getting pricier, with cell phone service eating up bigger slices of consumers' budgets. Americans spent an average of $1,226 on smartphones in 2011, up from $1,110 in 2007. 


Staggeringly, one in five Americans spend more on their mobile phones than on groceries each month. 


Like the fabled "Hotel California" of the Eagles' song, mobile phone customers apparently are also prisoners of their own device.


Follow Aimee Picchi on Twitter at @aimeepicchi


More on moneyNOW

6Comments
Aug 1, 2013 3:13PM
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OK?  Spotty coverage but you walk in and get a new phone instead of waiting 4 months?   Doesn't make since.   Sounds like she just wanted a new phone.
Aug 1, 2013 2:01PM
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you can checkout any time you like...but you can never leave.
Aug 2, 2013 2:22PM
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I wonder if there is anybody out there that is absolutely happy with their plan. Most of the plans that I have seen are like a win-lose proposition. The winner is of course the cell phone company.
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