Discount Cellular Phones-Breaking the cellphone con What T-Mobile’s move means for consumers
By: Mylan Cellular
When you buy a cellphone – an iPhone or Android phone, let’s say – you pay $200. The real price for that sophisticated piece of electronics is $600. But Verizon, AT&T and Sprint subsidize the phone. Your $200 is a down payment. You pay off the remaining $400 over the course of your two-year contract.
But once you’ve finished paying off your handset, your monthly bill doesn’t go down. You keep reimbursing the cellphone company as though you still owed it. Forever.
And speaking of the two-year contract, what other service locks you in for two years? Home phone? Cable TV? Internet? Magazine subscriptions? Baby sitter? Lawn maintenance? In any other industry, you can switch to a rival if you ever become unhappy. Companies have to work for your loyalty. If you try to leave your cellphone carrier early, you’re slapped with a penalty of hundreds of dollars.
But now the landscape changed. T-Mobile has violated the unwritten conspiracy code of cellphone carriers. John J. Legere, T-Mobile’s chief executive, took to the stage not only to expose the usurious schemes, but also to announce that it wouldn’t be playing those games anymore. At the new T-Mobile, the con is over. You can buy your phone outright, if you like – an iPhone 5 is $580, a Samsung Galaxy S III is $550. Or you can treat it like a car or a house: Pay $100 for the phone now and pay off the rest over time, $20 a month.
That may sound like the existing con, but it’s different in a few big ways. You pay only what the phone really costs. You don’t pay interest, and you stop paying when you’ve paid for the phone.
T-Mobile doesn’t care what phone you use, either; if it works on T-Mobile’s network, you can use it. And why not? Would you buy a car that uses only one brand of gas?
Yet another radical change: There are no more yearly contracts at T-Mobile. You can leave at any time. “If we suck this month, drop us,” said Legere. “Go somewhere else.”
In the new T-Mobile world, there are only three plans. All come with unlimited phone calls, unlimited texts, free tethering, which allows your laptop to get online via your phone, and unlimited Internet. The only difference is how much high-speed wireless Internet you get each month: 500 megabytes, $50 a month; 2 gigabytes, $60; or unlimited, $70.
After you’ve burned through that much data, your Internet speed drops to 2G speeds for the rest of the month – suitable for email or pulling up a Web page, but much too slow for video. You can upgrade your plan for a given month, if you like, but the point is that you’ll never be penalized. Over time, these plans can save you a huge amount of money. For a plan that matches T-Mobile’s $60 plan, Verizon would charge you $100 a month. For a plan that matches T-Mobile’s $70 plan, Sprint would charge you $110 a month.
Plus, Verizon and AT&T don’t offer the “unlimited slower Internet” option after you’ve eaten up your monthly data allotment. Instead, they just slap you with a steep per-gigabyte overage fee, $15 a gigabyte.
And in what may be the biggest, best news of all: T-Mobile is the first major carrier to eliminate the ridiculous, unnecessary, airtime-eating, 15 seconds of prerecorded instructions that you hear when you want to leave a message. When you call a T-Mobile customer, you go right to the beep.
T-Mobile can afford to be the disrupter because it’s in last place. It has the fewest customers and the smallest network coverage of any of the Big Four in the United States. It can take risks because it has nothing to lose. Part of T-Mobile’s problem is that it’s famous for not offering the iPhone and not offering the fastest kind of Internet network, known as 4G LTE. Fortunately, the company is tackling both of those drawbacks. On April 12, it will offer the iPhone 5 – with a feature nobody else has, in fact, called HD Voice. It offers supersharp voice quality when you’re calling another phone that has HD Voice.
The company has also managed to buy, merge and lobby its way into ownership of more spectrum – expensive, very limited cellular frequencies – that will allow it to install LTE networks at last. The company says it will have 100 million Americans covered by LTE signal by summer, and 200 million covered by year’s end.
As long as T-Mobile had a sad little network running no-name phones, it wouldn’t matter what its policies were. But once T-Mobile’s network and phones become contenders, its company’s much more fair, transparent, logical policies will suddenly matter. Those practices will have teeth. The other carriers will have to start paying attention.
And they should. The Great Cellphone Subsidy Con is indefensible no matter how you slice it – why should you keep paying the carrier for the price of a phone you’ve fully repaid? – and the two-year contract is an anti-competitive, anti-innovation greed machine. Those practices should stomp right across your outrage threshold.
If T-Mobile’s crazy, way-out plan succeeds, those practices may just go away.
And that’s why, even if you have no intention of becoming a T-Mobile customer – maybe there’s no coverage where you live, or maybe you’re already locked into a two-year contract – you should pay attention. One of the four emperors has now put on real clothes. The question is, will the others follow suit?
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