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T-Mobile Nixes Two-Year Contracts

T-Mobile Nixes Two-Year Contracts
By Jennifer LeClaire

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"The big thing behind the scenes to look at is the device financing, which is how they are making up for the lack of device subsidies for the service contract," said analyst Weston Henderek of T-Mobile's move. "Instead of paying $500, which is the full retail price on the phone, you would pay $50 up front and then over the course of two years you pay a monthly fee."
 


T-Mobile has officially done away with contracts and subsidies on its wireless devices. The "uncarrier" plan the company announced in January at the Consumer Electronics Show in Las Vegas is now live.

T-Mobile is making its Unlimited Nationwide 4G Data Plan available with no annual contract immediately. That makes T-Mobile the only U.S. carrier to offer an unlimited, nationwide, 4G data plan with no data caps or overages.

"As the 'Uncarrier,' we're doing the unthinkable," said John Legere, president and CEO of T-Mobile USA in January. "We're directly confronting the frustrations of American consumers fed up with the cost, complexity and congested networks of our competitors."

The Nitty-Gritty

T-Mobile is seeking to take advantage of consumer demand for more choice and flexibility in how they use their smartphones. T-Mobile said that since the introduction in September of its Unlimited Nationwide 4G Data plan, the plan is by far the most popular choice among its customers. In fact, the carrier reported, 46 percent of new customers opted for the new data plan in December 2012.

Weston Henderek, a principal analyst at Current Analysis, said the big plus for consumers was that T-Mobile was eliminating the two-year service contract across the board. Henderek expects T-Mobile to push that marketing message to the masses because it is the only carrier that can make the claim.

"However, the plans themselves are not nearly as simple as T-Mobile portrays them. They are actually pretty complicated when you get into the nitty-gritty, and there's nothing more affordable about them," Henderek said. "There may be some cases where the plan is a little bit cheaper, but the pricing is still similar to what they had before with their value plans."

Apples and Oranges?

Let's say the customer wants to purchase the Samsung Galaxy S III. Under T-Mobile's new paradigm, the consumer would pay $70 to initiate the service and then pay $90 a month with unlimited calling, data and texting. The monthly fee includes $20 to pay off the cost of the phone over a two-year period.

"The big thing behind the scenes to look at is the device financing, which is how they are making up for the lack of device subsidies for the service contract," Henderek told us. "Instead of paying $500, which is the full retail price on the phone, you would pay $50 up front and then over the course of two years you pay a monthly fee that pays off your phone and you add that monthly fee on to your service plan."

With competing carriers, even after the two-year period ends the bill does not go down. With T-Mobile's the bill would get cheaper after the device is paid off. At the end of the day consumers don't have a contract, Henderek said, but if you finance the device it's much like a contract because you are locked into that two-year financing plan.
 

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