Smartphones for a penny? Let's take a look at that fine print

Consumers are now using smartphones to shop.

Amazon's one-cent sale on smartphones sounds like a bargain. We're talking about phones that normally go for $200 or $300 being offered for 1/100th of a dollar. But before you go digging out your credit card here, let's take a look at what you're buying and what you're buying into.

For one thing, if you have your heart set on the iPhone 4S, sorry. There are no iPhones here. These aren't the phones you're looking for. Move along. And all the phones in Amazon's sale come with new two-year contracts, so you're making a big commitment to whichever carrier you choose.

Molly Wood, executive editor at CNET, says depending on your situation with your current deal and what you're looking for, this still might be a good offer to jump on. "What you want to figure out is exactly how much time is left on your old contract," she says, "because your early termination fee is prorated, so it does go down over time. If you only have six months left on your old contract and you're interested in a brand new Motorola RAZR, a Droid RAZR, that would cost $299 normally, you may find that you'd only have to pay $70 to break your contract. In that case, you're going to pay much less than the cost of a new phone and you're going to get this sort of really great high end smartphone for a penny. It may be worth breaking a contract if you're close to the end already."

A lot of people get commitment anxiety about a new phone. Molly says, "That's kind of the phone world right now. It's making suckers out of everyone left and right because the second you buy a phone, it's really within days sometimes that the newer, better phone comes along. I think it's a matter of choosing the phone that's right for you and making sure you don't get sucked into a contract that you're maybe not going to be happy with."

There are also some fees that go along with these deals Amazon is offering. And they're a lot higher than a penny. Molly says, "Even if you're staying with your current carrier and signing a new contract, there may be an activation fee.  Amazon also has a fee for canceling service. If you buy one of these phones and you cancel service within 181 days, Amazon will charge you a $250 fee in addition to whatever early termination fee you would pay to your carrier, so there's a little bit of fine print to look into."

Let's also remember that Amazon isn't offering this deal to be nice or to go broke. It's to make money. And where does it make money here? "Lots of places," says ABI Research analyst Michael Morgan with a laugh, "and it's not necessarily just through the sale of this handset. Amazon realizes that people are continuously shopping more and more online, and these devices are online portals that can be used to access the Amazon website and make further purchases. Furthermore, they now know you have a smartphone and are an Amazon shopper. That alone has value to Amazon."

Also on today's program, Skyrim is a new videogame that isn't like other games. You can choose to follow the storyline, sure, but you can also just hang out in a magical world.

About the author

John Moe is the host of Marketplace Tech Report, where he provides an insightful overview of the latest tech news.

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