To hear New York Times technology columnist David Pogue tell it, T-Mobile's (TMUS) strategy is equal parts business model and crusade. "It seems like a concerted effort to knock down everything people hate about cellphone companies," he says in the attached video. Suffice it to say T-Mobile has no shortage of targets.
Item #1 on T-Mobile's hit list was ending the two-year service plan or "the great subsidy con" as Pogue calls it. It's standard industry practice to give customers a deep discount to retail prices for phones but only with a contract. "It's understood by both parties that over the next two years you'll be paying off the rest of the phone." The con is that user bills don't drop after the phone is paid off. By the end of the service plan the user is still paying for a now obsolete piece of hardware.
T-Mobile made the process transparent. Customers have the choice of paying for a phone all at once, spread out the payments for the life of the contract, or just pay the full retail price. Verizon (VZ), AT&T (T) and Sprint (S) didn't rush out to copy T-Mobile's blindingly simple strategy. There's big money in those lock up contracts and other buried fees charged by wireless companies.
In part it's those fishy contracts that allowed Verizon to rack up big earnings numbers this morning despite adding fewer than expected customers. Verizon added 927,000 users when the Street expected 1 million. Fortunately for the company, the average customer's bill rose more than 7%. The way Verizon generated extra profits from fewer users wasn't alchemy; it' just a bunch of fees buried in the small print of your monthly bill.
Pogue says T-Mobile is about to expose another wireless ripoff by eliminating extreme roaming fees. For years international travelers have been getting hit with high roaming fees.
"With any other carrier people could come home to literally $6,000 phone bills," explains Pogue. "Your smartphone is constantly checking the Internet, not just for the things you know about like email or web, but things in the background." International roaming charges are so onerous that many travelers just buy disposable phones at foreign airports.
T-Mobile is killing that business as well. Starting October 31st international roaming customers can pay 20-cents a minute for calls and get text and data for free. With that single move T-Mobile instantly eliminates one of the most confusing and expensive aspects for going overseas. It's the biggest thing to happen in travel since the invention of the map.
T-Mobile has been racking up subscribers with their transparency, more than 1.5 million since March, but the giants aren't quaking just yet. Verizon has three times as many subscribers as T-Mobile and a much wider footprint in terms of service. Most customers don't have the option of switching to T-Mobile, but for those who do it's a no-brainer. The beauty of T-Mobile's business model is that customers can actually sign up for the service and quit anytime they want.
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