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Downsides include up-front costs and sometimes patchy network

T-Mobile USA -- invigorated by a merger with MetroPCS Communications Inc. (PCS), courtesy of the partial acquisition of MetroPCS by parent Deutsche Telekom AG's (ETR:DTE) -- is looking to rock the U.S. cellular market by switching to a mostly subsidy-free "UNcarrier" model.

I. The Rollout

Traditionally smartphones in the U.S. cost anywhere from nothing (free) to a couple hundred dollars.  The true cost of these smartphone devices can be $600 USD or more.  But carriers have transferred that cost to customers over the life of the plan via higher service bills.  

It's long seemed a clever psychological gambit; tricking customers into thinking they're paying less.  But it's not one that everyone is happy with.  Of late opposition to the subsidy model has been mounting.  And T-Mobile USA is leading the critics.

Starting today you'll be able to buy an unsubsidized handset from the carrier or elsewhere and then build a service package buffet-style that works for you.

Unsubsidized plans
T-Mobile rolls out its new unsubsidized pricing scheme today.
[Image Source: T-Mobile USA via TMONews]

Pricing varies based on the amount of data you select (500 MB, 2 GB, 4 GB, 6 GB, 8 GB, 10 GB, 12 GB, and unlimited options are possible).  For the 500 MB option you get that, plus unlimited talk and text for $50 USD/month.  For $20 USD you get "unlimited" data (no overages), while for each $10 USD more, you get 2 GB of unthrottled data.

II. What Do You Gain? What Do You Lose?

So how does this stack up to other carriers? You have to remember; you're not getting your handset subsidized.  

With that in mind let's consider a 1 GB data contract with unlimited talk and text.  On the nation's largest network -- Verizon Communications Inc. (VZ) and Vodafone Group Plc.'s (LON:VOD) joint-subsidiary Verizon Wireless -- you get this for $90 USD/month on a two-year contract.  The same contract is $60 USD/month on T-Mobile.  So you save $720 USD over the course of the two-year contract by picking T-Mobile.

Most premium smartphones on T-Mobile fall in the $400-500 USD range, so even with the cost of the phone, you'll still come out a couple hundred dollars ahead.  Plus T-Mobile USA does offer financing to essentially lessen the blow of paying for your new phone up front.  There's (of course) a small fee (interest) involved, but overall it's not as bad as a subsidized plan.

Also recall that T-Mobile subscribers are now "free" and can leave at any time -- versus subsidized contract customers on other networks who face incremental cancellation fee penalties for jumping ship before the contract's 2 years are up.

HTC One
Buying handsets like the HTC One may be expensive unsubsidized, but T-Mobile's pricing scheme will save you significantly over the course of your contract.

So the upsides are being contract free, saving money, and having a more clear perspective on what you're paying for service versus what you're paying for hardware.

About the only downsides are that you do have to pay up-front, and more importantly that T-Mobile's HSPA+ 3.5G network leaves something to be desired in terms of coverage and speed.  T-Mobile has promised an aggressive LTE rollout this year to catch up with rivals Verizon, Sprint Nextel Corp. (S), and AT&T, Inc. (T), but it's premature to assume it will achieve its ambitious goals for that push.

Regardless, if you want the best contract price-wise T-Mobile is the place to be (or possibly one of Sprint's various pre-paid brands).  With handsets like the HTC One by HTC Corp. (TPE:2498) and the Galaxy S IV by Samsung Electronics Comp., Ltd (KSC:005930) incoming, T-Mobile may see a strong pickup if it can properly advertise just how good a deal it's giving U.S. customers.

Source: TMONews



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Proof that the subsidy model is WIDELY unpopular?
By name99 on 3/25/2013 3:00:35 PM , Rating: -1
quote:
But it's not one that everyone is happy with. Of late opposition to the subsidy model has been mounting.


Please provide proof that opposition to the subsidy model is widespread and increasing (as opposed to mutterings on the internet by the usual malcontents).

I'm no fan of the subsidy model, but I also don't think anyone is helped by willful denial of reality. And that reality is that, as far as I can tell, the bulk of the US population AND the carriers AND the handset manufacturers (ie every party that matters) mostly like the subsidy model.
T-Mobile is doing this out of a position of major weakness and desperation; that's hardly the same thing as proof of a massive desire for the model.

Look you may be correct, I may be wrong. But I'd need to see evidence beyond a simple assertion that what you want to be true is true.




By room200 on 3/25/2013 3:27:07 PM , Rating: 2
Yes. I mean God forbid they'd try a different business model than everyone else; MUST be desperation. (sarcasm off)


By Solandri on 3/25/2013 5:48:01 PM , Rating: 2
Part of the problem is that most people under the subsidy model don't realize they're being ripped off once they're out of contract. In theory your monthly service fee should drop because your phone is no longer being subsidized. In practice, nobody but T-mobile does it.

Opposition to the subsidy model would rise dramatically if carriers were forced to label the subsidy in the bill. Then when people started getting out-of-contract bills with the subsidy still listed, they'd understand what's going on.

The whole thing needs to move from a subsidy model to a loan model anyway, just like with car loans or leases. All the subsidy model does is allow the carriers to hide the true cost of the phone in the monthly service fee. In all other respects, it's treated just like a loan (credit check, early termination fee).


By DT_Reader on 3/26/2013 12:51:19 AM , Rating: 2
You forget this has been the Phone Company business model since forever. When AT&T introduced colored phones (they were always black) they charged a premium of around $6/month, which was a LOT in the 1950s. A colored phone was a luxury item. Then, in the late 1960s, anyone could get any color offered for the price of black. But those who already had a colored phone kept paying that $6/month surcharge right up until the government broke up Ma Bell in the 1970s and finally allowed you to own your own phone.

The telephone business has always been, and always will be, a rip-off.


By Reclaimer77 on 3/25/2013 6:04:24 PM , Rating: 1
Yup. I probably wouldn't have a smartphone without the subsidy model. Not because the money is an issue, but just because if I had to buy the phone I would talk myself out it thinking of how much more cooler stuff I could get with that money instead. I would think "$700 for a phone that is obsolete after a year? I'll just buy a cheap phone and upgrade my computer or build a new machine" etc etc.

That's the real kicker, obsolescence. The rate that (non-Apple) smartphones are advancing is insane right now. I really don't even WANT to buy one outright when it's just going to be a doorstop in 15 months. The current subsidy model makes it extremely easy to use a phone then upgrade when that phone becomes crap or your contract expires.

It's like back in the day when we were dropping $2.5k plus on a new computer, only to have it's performance doubled and tripled by newer models after only a year or so, along with newer features we didn't have! God that sucked.

The model isn't unpopular at all. This is plainly obvious to anyone by just looking at how many people buy into it!


By Dr of crap on 3/26/2013 1:00:53 PM , Rating: 2
My point exactly.
EVERYONE on this site falls all over the latest cell phones that come out. AND that happens in less time then the 2 year plan you sign up for.

SOOOOO when your 2 years are up you upgrade to the next phone and ect...

With this new model, you'll jump ship earlier, fork out more money, and there will be A LOT of people dropping out because they CAN'T AFFORD to pay for service. That's why we all buy cars by monthly payments, cell phones/service by monthly service. Up front pricing might save you a bit, but it will also make a large segment of people KEEP their existing cell phones longer.


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