T-Mobile's no-contract can still lock you in
The high cost of a smartphone could keep you tethered to the carrier, particularly if you finance the device.
This post comes from Kelli B. Grant at partner site MarketWatch.
In addition to announcing its April 12 iPhone debut, T-Mobile confirmed in a Tuesday press conference its long-talked-about plans to eliminate the two-year contracts that it previously required -- and that AT&T, Verizon and Sprint still require -- for consumers to get a price break on a new handset, iPhone or otherwise.
As part of the shift, the carrier eliminated phone subsidies, charging users the full price for a new phone, either up front or financed over time as an extra line item on their monthly service bill.
It's the financing that sets T-Mobile apart from prepaid carriers, chief executive John Legere told reporters. New clients will still undergo credit checks, and those who decide to finance a phone purchase will be on the hook for the full amount if they switch to another carrier before the balance is paid off.
Experts say eliminating contracts and subsidies could help consumers save over the long run, since costs to repay phone subsidies won't be built into the plan fees. Contract providers typically have higher rates to regain the subsidies and offset the risk that a consumer will leave mid-contract, says Todd Day, a senior industry analyst with research firm Frost & Sullivan. "This allows T-Mobile to offer more flexible pricing plans," he says.
Under the carrier's new plans, unlimited talk, text and data runs $70 per month. (Verizon charges $90 a month for unlimited talk, text and 1GB of data; AT&T, $110 for unlimited talk, text and 300MB of data.)
But as with prepaid carriers, sticking around long enough to reap the savings is its own form of contract, says Kirk Parsons, senior director of telecom services for J.D. Power & Associates.
At first look, T-Mobile's $99 iPhone 5 is $100 cheaper than those of contract competitors and $350 less than prepaid carriers. Add in the $20-per-month financing over 24 months, though, and its price rises to $579, and your monthly bill, $90. The balance owed if you switch carriers before 24 months are up isn't unlike the early-termination fees charged at other carriers. (T-Mobile says it will offer a "fair market credit" for the phone's value for those who want to trade it in for a different device before it's paid off.)
Whether other carriers will follow suit in eliminating contracts and subsidies depends largely on how consumers respond to T-Mobile's new strategy. "They're clearly going out on a limb," says Stephen Baker, vice president for industry analysis at NPD Group. "They want to be the first ones to rethink how consumers buy phones and data plans. When you're fourth (largest in terms of customers), you don't have as much to lose."
Consumers looking at T-Mobile's new offerings should consider the same factors they might when switching to a prepaid carrier -- assessing service as well as price. And that new iPhone may not win out. While smartphones account for nearly half of the prepaid market, consumers paying full price for a handset tend to prefer Android models over the iPhone, says Day.
Competition in the market means even new Android models can have a retail price below $250. In comparison, Apple sells a two-generations-old unlocked iPhone 4 for $450.
More on MarketWatch and MSN Money:
I had t mobile and I loved my phone for everything except talking on phone In a 10 minute call I probably have to redial 3-4 times. because of dropped calls. But the final straw was I needed 911 and the call dropped 3 times luckily nobody was seriously hurt Maybe they ought to start looking into service long with their new plans
this is wonderful people. no more contracts. you can bring your own phone and get the lower rate. you can get their phone and start paying the lower rate as soon as it is paid off. try that with ATT and Verizon. plus the rate with the phone payment included is still less than those carriers. plus that is unlimited data. try that with ATT and Verizon. you can opt for only 500mb data and get even lower rate than that. plus no overage fees, it is just slower once you hit the cap. try that with ATT and Verizon.
---sent from my $80 tmobile family plan on a used ATT iPhone 4, not my $150 ATT family plan.
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