T-Mobile USA this weekend rolled out a new pricing structure that separates the cost of wireless service from the purchase of a phone — no longer subsidizing the cost of the device as part of the service plan.
It’s a key step in the Bellevue-based company’s bid to change the way consumers think about wireless service, and shake up its own business in the process. T-Mobile, which outlined the new strategy earlier this year, is expected to formally roll out the new model — and potentially some iPhone-related news — at an event in New York City tomorrow.
This is part of the company’s attempt to reinvent itself under new CEO John Legere. That reinvention also includes the pending merger between T-Mobile USA and MetroPCS, aiming to make T-Mobile USA — the No. 4 wireless carrier in the country — more competitive against AT&T, Verizon and Sprint.
The company’s new individual wireless plans start at $50/month for unlimited talking and texting, plus up to 500 MB of data and the ability to use a phone as a mobile wireless hotspot. An individual plan with up to 2GB of data runs $60/month, and unlimited data goes for $70/month. Family plans range from $80/month for two phones and 500 MB of data to $210/month for five lines with unlimited data.
But the big change for many wireless customers will be the way T-Mobile is charging for phones. Customers will pay a portion of the device price up front, and then make monthly payments (without interest) over 20 months to cover the rest of the cost. After that period, no more payments are required for the hardware.
One example: For a Samsung Galaxy S3, customers will pay $69.99 up front on T-Mobile, plus $20/month over two years (or they can just pay the full $549.99 at checkout). Combined with a $60/month data plan, that translates into $80/month total after the initial $69.99 down payment on the device.
By comparison, the same phone is $199.99 up front on Verizon with a two-year contract. For an individual plan, Verizon then charges a $40 “monthly line access” fee for the phone on top of the $60/month monthly cost of a 2GB data plan, for a total of $100/month.
T-Mobile hopes to win new customers in part through the promise of lower prices over time. The company explains in an FAQ, “Just like all other wireless carriers, T-Mobile has to charge enough to cover the cost of the phone. The difference is that, with Value Plans, T-Mobile separates the cost of the phone from the cost of the service. That means T-Mobile Value Plan customers finish paying for their phone as soon the actual cost is paid off—and their monthly bill automatically drops.”
The independent news site TMOnews has more detail on the new plans.
T-Mobile USA, part of Deutsche Telekom, has been toying with this idea of ending subsidies for a while, with then-marketing chief Cole Brodman first floating the concept publicly at the GeekWire Summit last year.
“It actually distorts what devices actually cost and it causes OEMs, carriers — everybody to compete on different playing fields,” he said of device subsidies. “And I think it is really difficult, especially from a consumer perspective, because it causes consumers to devalue completely the hardware they are using…. It is amazing hardware, but it has become kind of throw away. So, it is unfortunate, you’ve got dual-core, multiprocessor devices with amazing HD screens that get thrown away at 18 months.”