T-Mobile plans to ditch phone subsidies

Sinead Carew for Reuters:

T-Mobile USA said on Thursday it planned to stop subsidizing smartphones, the first major U.S. carrier to do so, in a move it hopes will cut costs and woo customers frustrated with restrictions on upgrades in longer-term contracts.

It’s an interesting move. Hot on the heels of the announcement that T-Mobile USA will begin offering its customers iPhones in 2013 comes this news.

Subsidies on phones have made it possible for American consumers to give in to their voracious appetite for shiny new hardware as it’s released, but it also provides a certain amount of vendor lock-in, as contracts require customers to endure lengthy periods without risking expensive penalties.

T-Mobile USA wants to change the game by making customers pay for the cost of their phones up front, but offering more lenient terms for phone upgrades on the back end. Of course, customers are still going to have to get over the very bleak idea of having to pay full retail price for their phones – sticker shock may overwhelm their desire to have a more fair cell service contract.

It’s something that hasn’t been done by major American phone carriers before now, and it could help T-Mobile USA differentiate itself against its three main competitors, AT&T, Verizon and Sprint.

  • DanielSw

    Interesting idea, but aren’t most of the cynics who complain about carrier lock-in the same pathetic people who complain about having to pay for ANYTHING? Good luck on selling a viable number of phones at $600-700 a pop, to say nothing of avoiding customer defections.

  • Eric Stephenson

    I hope this works out. I have a family plan on contract with Verizon that ends early next year. My wife and I have already decided to leave Veriazon because of the loss of unlimited data and the ridiculous prices. I don’t mind paying more upfront for a phone in order to save money monthly, so I will take a look at Tmobile’s new offerings. You can always buy a used phone in order to save money on that cost.

  • As I recall, the CNET article on this mentioned that you’d have the ability to finance the phone .. an iPhone for example would be something like $99 down and $20/month on your T-Mobile bill until it was paid off.

    • That’s great if its like that.

    • lucascott

      Yep. But the key is that it is a separate line item. So once you have paid it off that fee is done. Presumably if you want to change service or device mid contract you have to pay off the financing, ie pay the ETF, but it should be more exact to the actual cost left unlike current ETFs.

      This, in my opinion, is how it should be and once my AT&T contract is up I will be considering a switch, provided T-Mobile has their tower upgrades in order.

  • This is how all phones are sold here in Thailand, and the main effect it has had is to change the carriers into service providers that compete on features and price. Once you get used to paying the phone’s real price, you realise how much money you’re actually saving. There are unlimited Internet plans here for $25 per month, and there are no ridiculous restrictions on FaceTime or tethering.

  • chjode

    I did this with my iPhone 5. I paid full price ($650), unlocked it ($free), and now use T-Mobile’s $30/month plan. I save $40/month over AT&T and $60/month over Verizon.