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Phone price wars are winding down, but consumers can still get a deal

Aaron Pressman

Mobile phone consumers have been treated to almost three years of fierce competition -- and lower costs -- but the great pricing war may be winding down. Some of the most recent moves by the big carriers have scaled back cuts and even imposed new fees. And analysts say the battle is, at the very least, on hold for now.

That's not good news for consumers, but everyone remains much better off than they were just a few years ago and there are still ways to save money in the current environment, especially for Android phone users.

It may feel like the mobile calling wars have been around forever, but it all actually started in 2011 when the government rejected AT&T's (T) bid to buy T-Mobile (TMUS), a combination that likely would have killed competition. T-Mobile's owner, Deutsche Telecom, then brought in maverick CEO John Legere, who started by eliminating those restrictive two-year contracts, introduced a host of price cuts and reined in other anti-consumer practices that had been in place for decades.

But now it seems like the price cutting may be slowing down. AT&T recently added new and higher fees for activating and upgrading phones, T-Mobile made some family plans a bit less generous and Verizon Wireless (VZ) finally eliminated two-year contracts but without offering much savings in return.

Analyst Craig Moffett, who has followed the telecom industry for decades and accurately predicted the impact of the price wars, now sees the end in sight. It won't be as fun for consumers, but shareholders, particularly of Verizon, should make out a lot better, Moffett noted in an Aug. 11 report.

The analyst said he caught a "a glimmer of stabilization" on pricing in recent second-quarter reports. And all of the "recent market activity" around plan pricing "further our conviction that we are reaching at least a pause in aggressive discounting in U.S. wireless," Moffett wrote.

Other analysts who track the consumer side of phone plan pricing see a lessening, if not an outright end to the wars. "I wouldn't say it's over, but things are calming down now," says Jeff Kagan, an independent industry analyst. "They're not as excessive as they were a few short months ago."

What's changed? For one, the smaller carriers like Sprint (S) and T-Mobile seem to have taken prices for consumers as low as they can for now. Investors are concerned about cash burn at Sprint, and Deutsche Telecom has been trying to unload its U.S. subsidiary on and off since the AT&T deal fell apart. There is also a big government airwave license auction coming up next year and all of the carriers may need to husband their resources for the bidding wars to come.

"Pricing does seem to be leveling off somewhat, as I think it's in none of the carriers' interest to have an open-ended price war," says Jan Dawson, chief analyst at Jackdaw Research.

And after all of the various cuts and bargains that T-Mobile CEO Legere has come up with, he seems to have turned his attention to selling more phones, especially as we get into the season of Apple (AAPL) iPhone upgrades next month. Legere and Sprint CEO Marcelo Claure got into yet another Twitter spat recently over who had the best and cheapest plans for iPhone lovers.

That kind of competition could heat up, to the benefit of phone buyers, Dawson predicts. "We'll also see more competition around pricing for devices rather than necessarily services," he says.

Verizon was the last real holdout on two-year contracts and it finally shifted away from that strategy. Now it too will separate slightly lower monthly service fees and additional monthly installment payments to cover the cost of a phone (usually over 24 months). That's about $27 a month for an iPhone, for example (an unsubsidized iPhone 6 costs around $650, divided by 24 months, is $27 per month).

From a purely financial perspective, the installment plan option at any of the carriers can often be a better deal. If a customer pays off their phone and keeps using it, their phone bill will decrease dramatically.  

However, most people want a new phone every two years, or maybe even every year. In that case, the industry's whole shift starts to resemble the dawning of the car leasing era, when car companies got a jolt in sales and consumers ended up paying a lot more over the long term to keep driving the latest models. And some of the phone installment plans are designed to encourage just that kind of behavior.

But another way to go under the new separated payment plans is to buy a really good, inexpensive phone, like the brand new $180 Moto G. The "bring your own phone" option is a huge money saver if you opt for one of the spate of "good enough" Android phones like the Moto, which have specs and performance on par with the very best phones from a year or two ago. Of course, Apple lovers are out of luck, as Apple doesn't do cheap phones, at least not yet.

Some people think that making more obvious the cost of phones -- which can easily climb over $800 in total for a high-end iPhone or the new Samsung (005930.KS) Galaxy S6 edge+ -- will hurt sales. But a deeper look reveals that Apple and its competitors should make out just fine in the new era.

For example, T-Mobile has had installment plans for two years and sells an ever-increasing share of iPhones. Psychologically, because consumers no longer have to make the $199 or more upfront payment to get a new phone, the monthly installment plan feels cheaper. New car leasing is very popular for the same reason these phone plans will be very popular -- people like to have the new, new thing.