T-Mobile’s New Plan: Goodbye Subsidies, Hello Installments

On Thursday, T-Mobile announced that it will sell Apple "products" in 2013, but that's only part of the carrier's plans.

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Kacper Pempel / Reuters

On Thursday, T-Mobile announced that it will sell Apple “products” in 2013, but that’s only part of the carrier’s plans.

T-Mobile will also eliminate smartphone subsidies, in which customers pay a lower price for the phone in exchange for a two-year contract. T-Mobile will instead sell phones at full price, but with cheaper monthly service. Customers can also pay extra in monthly installments to reduce the up-front cost.

Confused? You might be, if you’re used to paying, say, $200 for an iPhone on AT&T, along with $70 per month or more for service. T-Mobile’s approach may be seem more complicated, but it saves money over the other major carriers in the long run.

As an example, let’s do the math on the Galaxy Note II, for which T-Mobile already offers an option to pay in installments:

  • The full price of the phone, without a contract, is $650.
  • Under T-Mobile’s Value Plan, you can pay full price for the phone plus $45 per month for basic service, which includes 500 voice minutes, 2 GB of data and pay-per-text. The total cost of ownership over two years is $1,730.
  • If you pay in installments, the up-front price is $250, plus another $20 for 20 months. On top of that, the cost of service is still $45 per month, bringing the total cost of ownership over two years to $1,730.
  • AT&T, by comparison, subsidizes the Galaxy Note II for $300 with a two-year contract. The cost of service, at minimum, is $70 for 450 voice minutes, 3 GB of data and pay-per text. The total cost of ownership over two years is $1,980.
  • In short, the total savings over two-years with T-Mobile is $250.

It’s also worth noting that T-Mobile now offers unlimited data for $10 per month more than the 2 GB plans listed above. And because the cost of monthly service is cheaper, the longer you keep your phone, the more money you save.

I’m glad T-Mobile is doing something different, while pushing unlimited data and cheaper plans overall. The company is making the right call by getting rid of its Classic Plans, which are more expensive both up-front and in the long run, and at the moment only add confusion to T-Mobile’s offerings.

But there are still challenges ahead. Once a company starts talking higher up-front prices, payment plans, and total costs in the thousands of dollars, it risks scaring people away. Other carriers gloss over those details and focus on the low sticker price for a reason. Besides, everyone’s needs are different, so it’s hard to compare one carrier’s costs of ownership with another in a general way. T-Mobile needs to get its message across–that it can save you money over time–without getting buried in nitty-gritty.

I hope it works out for T-Mobile, which has grown feistier ever since the U.S. government ruined AT&T’s plans to buy the carrier. In fact, T-Mobile seems eager to forget that chapter in its history. The gist of its planned marketing campaign around the arrival of Apple products? “You love your iPhone, but you hate AT&T.”

2 comments
liesthatcorporationstell
liesthatcorporationstell

I purchased a phone from Google (Nexus 4, 299.00) and it is a far superior phone than what T-mobile provides - for less.  The let me bring my new, unlocked phone to their network!  No additional cost.  I was also able to tailor my account for my usage.  I currently pay $45.00 a month.  The absolute lowest I could get with ATT was $90.00 per month!!!  The only disadvantages I see are: 

T-Mobile's coverage is less at my house.  (this is a small problem requiring me to step outside at times).  While this is disappointing - ATT had the same issue but was fine in my house and horrible at work (a major metropolitan downtown) and frequently dropped calls and delayed txt messages as well as having no data access from 4:00 pm until 7:00 pm every weekday.  

 The second disadvantage concerns their calls over wifi perk.  It is a free perk but can only be used on phones purchased in their store!!!!  This would have reduced my minutes usage to nearly 0 per month and would have removed the dropped call problem. To get this perk I would have to have purchased their crappier (my opinion) phone and paid considerably more for it as well.   Perhaps this issue will be fixed.

In conclusion: Paying half as much as ATT is awesome!!!  Being able to purchase my own smartphone and pick my own plan is great!

 

rocksockdoc
rocksockdoc like.author.displayName 1 Like

Thanks for providing this excellent information on the current and future direction of T-Mobile smartphone subsidies & rate plans.

One topic not discussed which makes T-Mobile even more attractive over AT&T than their punchline (You love your iPhone ...) is the fact that T-Mobile will allow smartphones on their network WITHOUT requiring a data plan (at least for non-subsidized smartphones). So, for example, I have an iPhone that I switched over from AT&T to T-Mobile simply because I didn't need or want the data plan - yet AT&T forced me to have a data plan - while T-Mobile is just fine with me not having a data plan on that phone.

Likewise, T-Mobile just allowed me to add a new $5 line for my kid, where I simply purchased the T-Mobile ZTE Concord Android phone at Walmart (on sale for about $80 exclusive of tax), so my total additional line costs was less than $200 per year (added to the existing family plan), which includes the $80 cost of the phone, $5/month service, $30 activation fee (exclusive of taxes & additional fees).