Competitors eye T-Mobile's no-contract move

The carrier is offering something many consumers want, but Verizon, AT&T and Sprint won't give up market share without a fight.

By Benzinga Apr 9, 2013 12:06PM
Woman Sitting in a Cafe Texting copyright Stephen Morris, Vetta, Getty ImagesBy Tim Parker

When T-Mobile announced plans to get rid of contracts while still making smartphones affordable, the news was seen by many observers as unimportant.


When you're No. 4 behind goliaths like Verizon (VZ), AT&T (T), and Sprint (S), disrupting the market is a tall order.


But there's evidence that the goliaths are watching closely. After the announcement, Verizon CEO Lowell McAdam was asked about the T-Mobile plan. He said developing a program like that would be "pretty easy."


McAdam said he's happy to see a new idea put in front of customers and he'll be watching customer reaction to the plan closely. McAdam said, "We can react quickly to consumers' shifting needs."


The T-Mobile plan is contract-free, but for those who can't pay the full price of the phone, an extra $20 is added to their monthly bill. They're contractually obligated to pay the $20 for two years.


AT&T CEO Randall Stephenson said the company is exploring the idea of handset financing, whereby customers would pay the cost of the phone over a few months. After that, they would be free to cancel service at any time.


The three larger carriers already offer a no-contract option, but customers have to pay the retail price for the phone upfront. This is not a program that companies promote as aggressively as they do contract offerings.


To the surprise of customers, cellphone companies may be willing to embrace the no-contract model because contracts are a lose-lose. Not only is there a growing distaste toward contracts, but by subsidizing the phone, the company is taking an earnings hit.


Apple's (AAPL) iPhone is believed to have a substantial impact on a carrier's earnings, especially during quarters when a new phone is brought to market.


So far, the T-Mobile plan hasn't seen the outsized customer response the company had hoped for. There could be a few reasons. First, for people who might be interested in jumping ship and heading to T-Mobile, those customers will have to wait for their contracts to run out or pay the early termination fee. This may be why Verizon will watch closely and "quickly react."


For those who do the math, it isn't the $1,000 savings that T-Mobile has said when it's compared with what most customers would get at AT&T. The savings is still an impressive $580, but some industry watchers say not even $580 is enough to pull customers from a carrier they trust (although may not like) to one they hardly know.


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2Comments
Apr 9, 2013 1:59PM
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Hats off to the Department of Justice. They denied the  ATT/T-mobile merger and now look, we have a company (T-mobile) getting competitive which is creating value for the customer, investment spending, creating more jobs and getting others in the industry to get of their butts and do something with all their assets. Competition, we could use more of it.

Apr 9, 2013 11:33PM
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You call that an increase!? I just bought penny stocks of INKA and they plummeted 1000% in one week. Would have never happened with a regular stock. And the best part the price is going up at an incredible speed. It is only 1.15
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