In a move that is strongly reflective of its overseas ownership, T-Mobile has announced that its customers now have the option to purchase cellular services without having to commit to a contract. Unlike the US, a large majority of European and Asian cell phone subscribers routinely purchase cell phone services on a monthly basis as opposed to the 1 and 2-year contracts familiar to most Americans. T-Mobiles new pre-paid plans start at $50/month for unlimited voice, texting and data, with a couple of small catches: data may be unlimited, but access to T-Mobile’s high-speed data network is capped at 500MB for the $50 plan (Increased to 2GB for $60, and truly unlimited for $70/month). The other gotcha? Pre-paid plans will no longer subsidize the cost of expensive phones that can be gotten for “free” with 2-year contracts, at least not in the manner with which you may be familiar.
What this means for you:
Of the major carriers in the US, T-Mobile is in fourth place in terms of market, and they trail third-place carrier Sprint by a large margin. Lacking the marketing muscle to go head to head with Verizon and AT&T, T-Mobile is attempting to disrupt the US market by offering plans that are common-place and popular overseas, but still relatively untested in the US. Many analysts believe that the US cellular market will grow to mirror its overseas counterparts, but that convergence is still at least 2-4 years away.
One of the key differences in T-Mobile’s plan is how they plan to allow consumers to still “subsidize” the cost of new phones. In a traditional 2-year plan as offered by the major carriers, the cost of a new phone is incorporated into the monthly subscription fee, and presumably at a rate that pays off the phone in two years time. T-Mobile offers a similar deal with their pre-paid plan, but instead of offering a single monthly amount, they actually break out the cost of the monthly payment for your new phone.
Why is this important? With T-Mobile, once you have finished paying off the phone (which can be done on their 2-year schedule, or sooner should you decide to just buy out the remaining balance), your monthly bill will be reduced to just the amount owed for services. With the traditional contract offered by the big carriers, your monthly bill will stay the same even though you have paid off your phone. This is no big deal if you decide to switch carriers, but they are banking on the fact that you might not. So far, this has paid off, given the popularity of this type of contract, but maybe T-Mobile can bring disrupt enough of the market to put some strain on the Verizon/AT&T duopoly in place in the US.
(Full disclosure: I’m a T-Mobile customer on 2-year contract, paying down my brand-new Nexus 4. I’m paying approximately $80/month which includes a monthly payment of $20 for my phone.)