Daily Ticker

T-Mobile Drops Long-Term Contracts and Phone Subsidies: More than Just a Gimmick?

Daily Ticker

T-Mobile, the fourth largest U.S. cellphone carrier, held an “un-carrier” event on Tuesday in New York to announce it was dropping long-term customer contracts and phone purchase subsidies. It also revealed it was going to start offering the iPhone for the first time -- an effort to attract more subscribers.

The iPhone will be available starting April 12 at a price of  $99.99 down plus $20 a month for 24 months, and other smartphones will be available with similar payment plans.

Customers will also be charged a monthly fee for a data plan. A new cellular account that has unlimited talk, text and Web with 500MB high-speed data costs $50 a month; with 2GB high-speed $60 a month and with unlimited 4G data $70 a month.

Getting rid of 2-year contracts for phones “sounds good to me,” says The Daily Ticker’s Lauren Lyster. “But guess how long you have to pay for that phone? Two years.” So is this just a gimmick?

Maybe not. Under the T-Mobile plan, once the phone is paid off, the customer owns it and the customer's monthly payments would decline.

That’s not the case with Verizon Wireless (VZ), AT&T Wireless (T) and Sprint Nextel (S). They subsidize the price of new phones so the phones cost about $200 upfront but they charge a regularly monthly for the phone purchase. Bottom line: the T-Mobile plan would be cheaper, but is it better?

Related: FreedomPop Challenges Phone Companies with Free Data Plan

Walter Piecyk, analyst at BTIG Research, compared the new T-Mobile pricing plan to that of Verizon Wireless, AT&T and Sprint Nextel for a “low-priced value rate plan” and concluded, "The monthly cost for the low-end user is lower” for T-Mobile.

A CNET report agrees. “T-Mobile’s pricing does seem to beat the big guys.” But CNET advises customers: “When you are pricing out these plans, make sure you are comparing apples to apples.”

The Daily Ticker’s Aaron Task says, “It’s almost impossible to do an apples-to-apples comparison of the different data plans and the different terms of these plans which is intentional. The carriers want you to be confused so you don’t know if you’re getting the best deal or not.”

But if you want to try to compare T-Mobile’s new pricing plan to that of other cell phone carriers, you should keep these differences in mind, according to a CNET report:

  • T-Mobile doesn’t offer the option of sharing data among members in a family plan
  • T-Mobile offers unlimited data but if you go beyond the maximum for your plan—say, the 500 MB high-speed data plan—your data speeds will slow unless you pay extra for an upgrade.

And then, of course, there’s the service itself. Can you make the calls you need and stay connected when you need to? Is the data download fast enough? That will likely depend on your location. Keep in mind that T-Mobile is in the process of a massive network upgrade and is offering fast 4G LTE in seven major metro areas.

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