Your options for cellphone service

"I signed a cellphone contract to get a good price on a new iPhone. When my two-year contract expired, I continued month-to-month. My monthly payment stayed the same. A friend pointed out that as I had now paid off the cost of the phone, I was effectively paying more than if I’d bought the phone upfront."

– Heather, Vancouver

Choosing a cellphone can be a complicated process. Two-year contract or pay-as-you-go? Smartphone or basic flip phone? Individual or shared plan? With so many options and new words to learn, it can be hard to decide what to buy.

Three options to consider

When you get a cellphone, you are buying two things: the phone handset and the cellphone service. The handset is the physical device. The service is what allows you to use the phone. 

In buying cellphone service, most people sign a service contract with a phone provider. But it's not your only option. And it’s rarely your cheapest option. 

Option 1: The cellphone contract

You can walk into a store and buy a laptop or a TV, and you don’t have to sign a contract with an internet provider or a cable company. Yet it’s different with a cellphone. The majority of people buying a cellphone sign a two-year contract with a service provider, typically in exchange for a “free” or discounted phone handset.

A service contract with a phone provider is called a "postpaid service contract" in the Wireless Code, Canada’s main set of rules for cellphone service providers. 

In the contract, you agree to pay a minimum payment each month for the term of the contract, typically two years. Your payment covers a set amount of calls, texts and (optionally) data. If you go over the set amounts, you have to pay extra. If you end the contract early, you have to pay cancellation charges.

In signing a cellphone contract, the Wireless Code offers you several legal protections.

Service contracts can be expensive

Signing a service contract with a phone provider can be a way to get the service plan or the phone that you want at a low upfront price. But it often costs more over the long run. Your "free" phone is not actually free — the cost is typically built into the contract payments so that you’re effectively paying off the full cost of the phone over the length of the contract.

Option 2: Prepaid services 

Prepaid services are cellphone services bought in advance of use — for example, a prepaid card or a pay-as-you-go service. 

With prepaid services, you put money (called credit) onto an account. Every time you make a call, send a text or use the internet on your phone, the cost is taken out of your prepaid account balance. When your balance runs out, you buy more credit, “topping up” your account. 

Prepaid services are typically less expensive than postpaid service contracts. You  pay for only what you use. There’s no risk of "bill shock" — getting a bill that is much higher than expected. On the flip side, you have fewer protections when you get a prepaid service.

Postpaid versus prepaid service plans

Some prepaid phone plans look and work a lot like postpaid service plans. The test for whether a cellphone plan is considered a prepaid service or a postpaid service under the Wireless Code is: Can the service provider bill you for some or all charges after use, or can you incur overage charges beyond the prepaid balance? If the answer is yes, the plan is a postpaid service plan.

Option 3: Month-to-month service plans

Almost every phone provider offers month-to-month cellphone service plans. With these plans you pay a monthly rate for a set amount of calls, texts and (optionally) data, but you are not required to commit to a long-term service contract. These plans generally require you to provide or purchase your own phone.

Many providers also offer the month-to-month option to customers once their initial cellphone contract runs out.

Pros and cons of the options  

Here are key differences between the three options for cellphone service: prepaid services, a postpaid service contract, and a month-to-month service plan.

PhoneNeed to have a phone or pay for oneLow upfront price to get phone or service plan you wantNeed to have a phone or pay for one
Costs + RiskCosts per minute can be higher; No risk of bill shockMinimum monthly charges; Risk of bill shock for unexpected chargesMinimum monthly charges; Risk of bill shock for unexpected charges
ProtectionsFewer protections under the Wireless CodeMore protections under the Wireless CodeFewer protections under the Wireless Code
UsageMust top up your account on time; If you run out of credit, you can't use the phoneNo credit required to make use of phoneNo credit required to make use of phone
CancellationNot locked into a contract termLocked in for a contract term, unless you pay a cancellation feeNot locked into a contract term

Learn more about what you should know when signing a cellphone contract or getting prepaid cellphone services. Also check out our guidance on negotiating with a cellphone provider.

  • Reviewed in July 2019
  • This information applies to British Columbia, Canada
  • Time to read: 4 minutes

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