T-Mobile Abolishes the Wireless Contract

by Matt Klassen on March 26, 2013

T-Mobile has long suffered from an identity crisis, its perennial fourth-place position in the wireless market placing the Deustche Telekom subsidiary at the confluence of the lower end prepaid carriers and the higher end contract carriers. Never exactly sure where it fit, T-Mobile has continually flopped between both camps, desperate to compete with the likes of Verizon, AT&T, and Sprint but always hamstrung by its need for prepaid subscribers.

Unable to escape this reality it looks like T-Mobile has finally embraced its strange hybrid position between the prepaid and postpaid wireless worlds, announcing earlier this week its intention to abolish wireless contracts completely, breaking the seemingly inexorable bond between our favourite phones and those expensive binding ball-and-chain multiyear deals.

This shift is part of a broader corporate move that company CEO John Legere hinted at during a press conference at this year’s lackluster CES, one of several changes designed to make the fourth-place carrier more competitive in all sectors of the wireless industry. But the question remains, will this be enough to stop the company’s debilitating customer hemorrhage, as subscribers continue to avoid T-Mobile over concerns of corporate stability, product choice, and network performance.

There’s no question that in the wireless market prepaid (or pay-as-you-go) options are far more attractive than binding multiyear postpaid contracts, the only problem for carriers has always been the expense involved in offering the market’s latest phones, as carriers have needed to subsidize these phones up front for customers, recouping those initial losses over the course of the contract.

For example, a phone like the iPhone 5 without a carrier subsidy would cost the end consumer just under $700, far too much for the average user to pay up front. To alleviate this financial burden, carriers, as mentioned, subsidize this phone, offering it to customers usually somewhere between $150 and $200, the difference initially floated by the carrier. The carrier makes a profit over the long term, as build in to one’s monthly contracted fee is company profit, meaning after two or three years your carrier has made back its money and considerably more.

This reality has made prepaid options, at least for the top end phones (the ones the generate the most revenue generally), all but impossible, leaving no-contract options as nothing but a pipedream for frustrated customers…until now, that is.

Clearly cognizant of the market realities, T-Mobile’s new no-contract approach attempts to split the difference, still subsidizing phones but tacking on a small phone fee on top of your monthly bill to help the company alleviate the burden of high priced smartphones. This means that while the other top three carriers continue to make you pay for your smartphone over the life of the contract, a cost built into your contracted monthly amount, T-Mobile charges a small additional monthly fee that ends when your phone is paid off. If that’s not to your liking, T-Mobile is also offering the choice to buy your phone outright when you sign up with the company.

So how does this look in reality? As of yesterday T-Mobile’s website shows that a customer could select an unlimited talk, text, and Web option that includes up to 500 MB of data, for instance, on a single phone for $50, not including the small smartphone fee. The price rises as the data level increases—2GB for $60, 4GB for $70 etc…

Now just in case you’re wondering which is the more affordable option, as I’ve said before, prepaid is always better over the life of a contract, it just usually includes stiff upfront costs that most of us simply can’t afford. But perhaps T-Mobile has stumbled on a workable hybrid solution, offering customers the best of the prepaid world with the selection of the larger postpaid carriers.

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Written by: Matt Klassen. www.digitcom.ca. Follow TheTelecomBlog.com by: RSS, Twitter, Facebook, or YouTube.

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