T-Mobile: Goodbye, free phones by 2013!

December 7, 2012

    t-mobile logo Axel Schwenke/Flickr

    T-Mobile is changing its mobile phone subscription model by 2013. In gist, the carrier will only offer Value Plans, and it wants you to buy smartphones at full-price rather than go for a subsidized phone.

    The pricing model for mobile service in the U.S. has traditionally been subsidy-based. Phones are free or cheap because the carrier pays for the phone upfront. As such, you can get a $650 smartphone cheap or for free, but the carrier will recoup this investment by adding on to the monthly charge. This cost is imputed into the plan, though, and is considered a hidden charge. T-Mobile wants to change this by 2013, as they start offering the iPhone for the first time.

    T-Mobile is finally offering the iPhone, but unlike other carriers, the telco will offer it to customers at cost. Tmo will start pushing only its Value Plan offerings, and will no longer offer Classic Plans. Value Plans are about $20 cheaper per month for the same service than its classic ones.

    But why the move away from subsidy? T-Mobile offers the following benefits.

    • Tmo says this will encourage “BYOD” or bring-your-own-device setups among customers. You can simply go for a plan with your existing unlocked smartphone or tablet if you choose to.
    • This will also encourage device upgrades even without having to wait for contract to mature.
    • The new plans are also meant to help customers appreciate just how expensive smartphones are. These are $650 to $800 (or more) devices, after all. With “free” offers, users tend to feel these are just throwaway devices, when in fact they’re paying for it in their monthly bills.
    • With subsidies, consumers continue paying for the subsidized cost of the phone even after the contract has expired. With non-subsidized phones, users pay only for the services they use.

    T-Mobile will not just let users bear the full cost of devices outright, though. The mobile provider will continue offering Equipment Installment Plans (EIP), which lets users pay for the device cost in monthly installments for 20 months, which will depend on how much the phone will cost (usually a downpayment plus $5 to $20 monthly).

    In an investor call, T-Mobile CEO John Legere says this move is expected to appeal to customers who feel limited by carrier restrictions on upgrades because of their subsidies. It also means that customers get to save in the long run. “We think there is huge room for a challenger to change some of that, in a way that the larger players will not be able to or will choose not to respond to,” Legere said, expounding on the current subsidy-based business model that most carriers are following.

    $20 multiplied by 24 months is $480, after all — an added cost that you’re probably better off using toward the purchase of a new phone or for your device installments.

    Is this a good move on T-Mobile’s part? Are American consumers ready for a radical change in mobile phone pricing?

    Source

    Comments

    • No One

      That is how we are getting our Mobile in Australia. You chose the plan then depend on each plan you have to make payment monthly for your device it is called MRO or MPP. For example, my plan is $39 a month and I have to pay $15/24 months for my handset. If I go to higher plan I won’t have to pay anything for the handset. For BYO plan it is normally $10 cheaper than phone plan. We don’t have to pay $199 or $299 like that for phone in here. Either Payment Plan or Outright.

    • http://twitter.com/_KID_ANDROID_ KID ANDROID

      There reasoning is mostly bull but I buy unlocked devices so in that case its a huge benefit if it brings down the cost of service. If companys plan on doing this then I hope they plan on eliminating bloatware also. They should have no right at all now to put their crap on a device you own.-KID ANDROID (Team.Android.Canada)

      • No One

        For Australia and with Virgin Mobile and Optus, I can uninstall all bloatware from carrier.

        • Lara

          HOW? I don’t want root or custom rom.

    • Edward Smith

      “$20 multiplied by 24 months is $480, after all — an added cost that you’re probably better off using toward the purchase of a new phone or for your device installments.”

      Being a family man, I can’t afford to fork out $480+ for a smart phone out right, which by the way is around the price TMO is offering me for a SGSIII and NoteII for with a full upgrade discount. That’s a complete rip off. There is a difference between giving customers options and forcing customers to leave or settle for a crappy phone. Give us options, don’t take away options.

      As to the quote above, doesn’t balance out either way you do it? Way can’t the customer choose to pay $480 upfront or pay for it over time with plans? The whole point is that the carrier is losing money, and now with iPhones coming over to TMO its making Android devices more expensive thus effecting the market… biased towards iPhones.

      As for me, good bye TMO!

      • Marvin Nakajima

        If you read through the article you would notice the option for the Equipment Installment Plans (EIP) which would allow you to pay over time.

      • Jose Hernandez

        I would suggest you read the article again, obviously you just did not understand it.

    • AndroidBrian

      This sucks for me because I have a great grandfathered plan. T-Mobile u suck. “To help customers appreciate how expensive cell phones are” you have to be kidding me.

      Every single reason is huge pile of crap. 1. BYOD has always been an option why should it be encouraged? 2. Encourage device upgrades? Why do you care because we won’t be buying them from u. 3. Seriously? 4. After the contract is up you get another upgrade! Wtf r u talking about.

      This is T-Mobiles way of screwing all there long time customers. T-Mobile is just eliminating options. And creating nothing new.

      • http://twitter.com/SummonerXI Jen

        I agree with you. We recently just renewed our contract, and now I can’t get the phone I wanted without coughing up $250, and that’s just for the monthly installment plan. The subsidy plan was a good thing for people lacking money. Seems like they only care about people with deep pockets.

      • Justin

        BYOD with other carriers requires a contract for a new line of service. Also, compare the monthly cost to the next lowest major carrier (Sprint) an you will be paying quite a bit more per month. My only concern is coverage. I expect that the free wifi calling will be a huge benefit. I don’t know of any other carrier in the US offering that.

    • http://www.thinkingbrian.com/ ThinkingBrian

      Most of what T-Mobile is doing here sounds pretty good, smartphone cost a lot more than customers realize. But one thing caught my attention, if a customer isn’t buying a subsidized phone ($700 regular price) with a 2-year contract, then why would a customer sign a contract?

      The only reason to sign a 2-year contract is for the subsidized phone. There should be no contract for plans for people who are bring there own devices such as an Apple iPhone, Windows phone or Android phone like a Nexus device.

      Note: Keep in mind that I have never signed a contract with a carrier and been using prepaid all my life. Yes I buy my own phones at full price or off ebay/craigslist.

    • tdeb

      T-Mobile needs to give people incentive to stay with them. If it T-Mobile still had me pay for phone through hidden charges, it was nice to have the thought of reduced priced phone. After my contract is over I’ll just take my phone that I’ve paid on and use it on another network like simple mobile or straight talk. T-Mobile should give some incentive to stay on contract. Paying monthly for a phone is not enough

    • Jose Chavez

      this my opinion the new value plans start the 26 of march 80 unlimited talk and tex for 2 phones plus 20 for each phone of data makes 120 for 2 phones plus 20 each value phone at month 160 plus taxes 175 so when you pay 20 at month for the phone still under contract is the same shiet att 150 unlimited talk tex and 4g and free phone plus 4.95 for some special insurence 3 to 12 months i will upgrade my phone thas amazing

    • Jose Chavez

      this my opinion the new value plans start the 26 of march 80 unlimited talk and tex for 2 phones plus 20 for each phone of data makes 120 for 2 phones plus 20 each value phone at month 160 plus taxes 175 so when you pay 20 at month for the phone still under contract is the same shiet att 150 unlimited talk tex and 4g and free phone plus 4.95 for some special insurence 3 to 12 months i will upgrade my phone thas amazing

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