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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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RE: What about existing contracts?
By TSS on 3/26/2013 11:19:24 AM , Rating: 2
Hmmmmm....

I have to be pessimistic about this one. Here in europe all carriers offer pre-paid and subsidized subscriptions. The people also know pre-paid is alot cheaper. Even so the vast majority of smartphone users are still younger people (it'll take another decade before the smartphone generation hits disposable income) who can't afford 500 euro's up front. So the vast majority of phones are bought on contract.

Even so, i recently bought a pre-paid smartphone of about 350 euro's. T-mobile has the largest selection of the carriers in my country but thing is - i didn't buy it from a carrier. That's silly. I bought it from a webshop, a so called "box shoveller" like amazon who just buys massive quantities to sell on margin. Would've cost me almost 100 euro's extra if i'd bought it at t-mobile.

Ysee the thing is people buying pre-paid are already looking to save money so they will try to save the most money possible (this is logical, you have to have saved the money upfront to buy prepaid in the first place). Which is webshop + sim only subscription, and has always been.

If i'd had to wager a guess "why now" t-mobile is starting to offer this deal, i'd point at the trillion+ dollars in student loan debt. Students are probably the biggest section of the smartphone market. They don't have money so they're all on contracts. Since tuition and such is going up, that leaves less credit - or money that can be paid monthly instead of upfront - to spend on smartphones. I'd suspect the carriers have already seen a significant drop in sales because of this, and it's always the small fish that blink first as their margins for error are smaller.

In other words T-mobile wants to get a piece of the people who do still have money, because the people who don't have money are running out of possible money.


"So, I think the same thing of the music industry. They can't say that they're losing money, you know what I'm saying. They just probably don't have the same surplus that they had." -- Wu-Tang Clan founder RZA














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