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Goodbye 2-year contracts means goodbye free upgrades

Verizon will drop longer cell phone contracts in favor of month-to-month plans
Verizon to drop long contracts in favor of monthly plans 01:05

Verizon is ditching its onerous two-year cellular contracts. Customers of the country's largest wireless company may breathe a cumulative sigh of relief -- until they see the price tag on their next phone.

The upside of moving from a locked-in contract plan to a month-to-month plan is that what you pay for can more closely hew to your actual monthly usage. And, of course, you can back out at any time without a nasty early termination fee. But the cure for contract anxiety comes with a side effect of sticker shock.

Verizon to scrap 2-year contracts, phone subsidies 01:36

Two-year plans included subsidies for smartphones and free or low-cost upgrades, enticing signups with cheaper phones. With these contracts go the subsidies, which means new customers will have to pay full price for iPhones, Galaxies and other top-shelf devices that can run upward of $600 or $700.

"What this really means for consumers is it's the end of the $200 smartphone," said CNET's Dan Ackerman.

The truth is, the price of phones was always basically baked into your monthly bill, spread out over two years. Now, it's just out in the open.

"At the end of the day, no matter how much they switch up these plans you're not going to end up paying these companies less money every month because that's not their business plan," Ackerman said.

T-Mobile did away with contracts a while ago; AT&T is also pushing customers in this direction.

Starting Aug. 13, new Verizon customers will choose between "small," "medium," "large" and "extra large" data plans to add onto unlimited talk and text. They can either bring their old phones, buy a new one at full retail price, or pay for one on a 24-month installment plan. For those who are counting, 24 months is two years, the length of a contract.

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