T-Mobile held a special event today to announce the death of the traditional cell phone pricing plan, with the carrier moving to a new model where customers purchase their own phone and are under no obligation to stick with their service over a long-term contract. It’s cute, but here’s the thing: smartphones are super expensive, so that either becomes an up-front cost, or one that’s helpfully defrayed by T-Mobile over the course of a multi-year monthly installment plan payback.
Before we go any further, here’s T-Mobile’s new plan concept in a nutshell. Rather than force would-be customers to pick out how many minutes and text messages they want, T-Mobile’s Simple Choice plan gives everyone unlimited amounts of both. The real kicker here is how these new plans handle data — customers technically have an unlimited pool of data to tap into, but the basic $50 individual plan only lets people use 500MB of high-speed data before getting throttled. In case that’s not enough, heavy data users can shell out another $10 or $20 per line per month in exchange for 2GB or unlimited high-speed data respectively.
But what’s that? You have a family of would-be smartphone owners? That primary line still starts off at $50, but the second will run you an additional $30 per month and each subsequent line raises the bill by $10.
Leave early, and you owe T-Mobile the balance on that shiny new smartphone which can amount to a lot more than what you’d pay in terms of a maximum early termination fee on a similar contract from one of the other major U.S. carriers. ETFs are currently capped at around $350 for smartphones on AT&T, Verizon and Sprint, and had a maximum of $200 on T-Mobile prior to this shift. If you buy a $500 smartphone, but only pay $70 up front, you’re on the hook for the remaining $430 should you decide to leave after a week. But with a long-term contract device, regardless of the initial subsidy, your ETF is capped at $350 (and $200 at T-Mobile, before all this went down).
It’s not all bad: if you have a device that you own already and bring your own hardware, the monthly savings is significant at T-Mobile now, just as it was before when the company offered Value plans. There’s also the fact that you can trade-in a device if you leave T-Mobile, or continue to make monthly payments it instead of paying out the remaining balance. But once you add in the monthly installments to pay off that initial hardware loan, prices look a lot like they would for comparable services and data/talk limits on standard contract plans from AT&T, Sprint, and Verizon.
There are some significant long-term advantages to this kind of pricing approach. For one, it doesn’t continue to punish the consumer after they’ve already paid off the debt incurred by their hardware purchase; once you’ve paid off the initial hardware loan, your monthly rates automatically drop. With traditional contract pricing, that never happens, unless you’re smart enough to call and haggle with your carrier after the term of your contract ends for a customer retention bargain.
The death of contracts is a great marketing slogan, but when the smoke clears, that’s about all it is: minus a tiny amount of agency sliding back towards the consumer end of the scale away from carriers. In Canada, most major carriers also have “budget” subsidiaries that offer the exact same “no-contract” pricing with a device “tab” instead; their parent companies retain the lion’s share of subscribers, and having been a customer of both types of carrier, I can tell you that despite the hype there is no remarkable difference between the two. There’s a credit check, and there’s definitely a contract you have to sign. And if you’ve got iffy credit, you pay upfront, vs. at the end of the month if your score is okay.
That’s especially true if you plan on buying a new smartphone every two years or sooner, and don’t intend to pay for those outright at the contract outset. A subsidy and a multi-year agreement may sound a lot more shackling than a phone you “own” and no mandatory term, but if you like your smartphones brand new and fairly frequent, in practice both payment models are more alike than they are different. Of course, T-Mobile CEO John Legere doesn’t quite see it that way — at the carrier’s launch event in New York, he’s spent quite a bit of time railing against the other domestic carriers and went as far as imploring them to “stop the bullshit.” T-Mobile may have moved to simplify the process of picking out plans and this new offering is is considerably cheaper than what the carrier’s rivals are offering, but existing T-Mobile customers may not get a dramatic dip in what they shell out each month right out of the gate.