RedSpeed Blog
What a 24-Month Telco Contract Actually Costs You
The real cost of a lock-in contract usually isn't the exit fee. It's being stuck on a plan you've outgrown while a better one sits right next to it.
Short answer: the sticker price of a locked-in contract often looks fine. The real cost shows up later, when your circumstances change and you're still 14 months from being free to leave.
Why do telcos want you locked in at all?
A contract reduces churn for the telco and, in a lot of cases, subsidises a device cost over the term. In exchange, you commit to staying, and paying, for a fixed period, usually 12 or 24 months.
That's a fair trade if nothing changes. The problem is that 24 months is a long time, and life doesn't usually cooperate with a billing cycle.
What does being locked in actually cost you?
Not the exit fee itself. Most people never pay one, because most people never leave. The real cost is what economists would call an opportunity cost: for however many months remain on your contract, you can't take a better plan even if one appears right next to you.
A few common scenarios where this bites:
- A cheaper or faster plan launches 8 months into a 24-month contract, and you're stuck for 16 more
- You move somewhere your current network is worse
- Your usage drops and you're paying for data you no longer need
- Service quality slips and switching would fix it immediately, if you could
None of these are edge cases. They're just normal life, and a lock-in contract removes your ability to respond to any of them.
How are exit fees actually calculated?
Typically, it's a pro-rated payout of whatever's left on the contract: remaining device subsidy, remaining minimum spend, or both. It's not usually a punitive flat fee, but it's real money, and it's specifically designed to make leaving early cost more than staying.
What does month-to-month actually change?
With a month-to-month plan, there's nothing to pay out because there's nothing left owing. You're never more than 30 days from being able to switch. RedSpeed's personal mobile and NBN plans are structured this way: no lock-in, so the only reason to stay is that the plan is still working for you.
That's a different incentive than a contract creates, and it's worth knowing which one you're actually signing up for.
Common questions
Do all telcos charge exit fees?
Most contract plans do, though the amount varies. Month-to-month plans, like RedSpeed's personal mobile and NBN plans, don't have one because there's no remaining contract to pay out.
Does no lock-in mean I pay more?
Not necessarily. Some lock-in plans include a subsidised device, which is where the real trade-off is: you're financing hardware, not just paying for service.
Can I still get a good deal without signing a contract?
Yes. Month-to-month plans can be just as competitively priced; you're trading a device subsidy for flexibility, not paying a premium for it.