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T-Mobile gets aggressive with no-contract plans

Published March 26, 2013 6:51 pm

Wireless • No. 4 carriers to start selling iPhone April 12 with cheaper service.
This is an archived article that was published on sltrib.com in 2013, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

T-Mobile USA, the struggling wireless carrier, has a ray of hope. It's finally getting the iPhone, it's selling the device at an aggressive price, and customers won't have to sign a contract.

The company said Tuesday that the Apple iPhone 5 would be available starting April 12 for $100 up front, with customers paying an additional $20 a month for 24 months for the handset. Other new smartphones, such as the Samsung Galaxy S IV and the BlackBerry Z10, will be available with similar payment plans, the former on or around May 1.

Although there would be no contract binding customers to T-Mobile, the No. 4 American mobile carrier by market share, customers would have to pay off the balance they owe on their phone to end service before the two years are up.

Also Tuesday, T-Mobile formally replaced its old phone contracts with new plans that do not require signing a contract. For $50 a month, customers can get unlimited minutes, text messages and 500 megabytes of data; they can pay an extra $20 for unlimited data.

Over two years, the effective price for a smartphone and phone service would be hundreds of dollars less than it would on AT&T or Verizon Wireless. At $580, it would also be cheaper than buying a $649 unlocked phone directly from Apple.

At those two carriers, the most popular phone plans cost upward of $100 a month with a two-year contract for limited data. The iPhone 5 costs at least $199 on their networks with a two-year contract.

The simplified phone plans are part of T-Mobile's new campaign to be the "un-carrier." By moving to contract-free plans, it says it is doing away with charging customers fees for surpassing their data limits or terminating their service early.

John Legere, T-Mobile USA's CEO, said that over two years an iPhone on T-Mobile will cost $1,000 less than it would on AT&T. He said moving toward contract-free plans would make the price that people pay more transparent and save them money over time.

"Do you have any idea what you're paying?" Legere said at a news media event in New York. "I'm going to explain how stupid we all are because once it becomes flat and transparent, there's nowhere to hide. You pay so much for your phones, it's incredible."

T-Mobile has been losing customers to the bigger companies, which all sell the iPhone.

The new phone announcements come just days after T-Mobile ditched its conventional contract-based plans in favor of selling phones on an installment basis. It's separating the cost of the phone from the service, and when a phone is paid off, usually after two years, the monthly fee for the phone disappears from the billing statement.

On traditional contract-based plans still used by the other carriers, the buyer is deemed to have "paid off" the phone after a certain period, at which point the customer becomes eligible for a new, subsidized phone. The monthly payments, however, don't decline if the customer keeps the old phone.

T-Mobile phones won't come with service contracts, so customers are free to jump from to another carrier at any point, but they'll still be paying off their T-Mobile phone in monthly installments.

In some areas, where its network supports them, T-Mobile will also sell the older iPhone 4, for $15 down and $15 per month for two years, and the 4S for $70 plus $20 per month for two years.

T-Mobile's network has, until recently, not been able to offer high-speed data service to iPhones. It's now able to deliver high-speed data to iPhones in some cities, and it has lured more than 2.1 million off-contract AT&T iPhones, executives said Tuesday.

The company also announced that it is firing up an even faster data network, based on so-called "LTE" technology, in Baltimore, Houston, Kansas City, Las Vegas, Phoenix, San Jose, Calif., and Washington. Unofficially, the network is also active here and there in New York, as demonstrated at the event.

By the end of the year, T-Mobile says LTE will be available where two-thirds of the nation's population lives. The iPhone 5 can access the LTE network for faster data downloads, while the older iPhones can't.

T-Mobile is the last of the four major carriers to launch an LTE network, but already has a relatively fast "4G" network. It's been hamstrung by a lack of space on the airwaves, but gained some room last year from AT&T as part the compensation for a failed buyout attempt. That's allowing it to start building the LTE network.

T-Mobile wants to boost its LTE capacity and speeds even further by merging with No. 5 carrier MetroPCS Communications Inc. and thus gaining access to its space on the airwaves. That deal faces opposition from MetroPCS shareholders. By coincidence, they are voting on the merger on April 12, the same day T-Mobile starts selling the iPhone.

T-Mobile also said it will start selling the Samsung Galaxy S 4 on or around May 1. That's the successor to the Galaxy S III, which has been the chief competitor to the iPhone.

T-Mobile is positioning the change as a radical departure from industry practices, and is basing a new advertising campaign on being the "Uncarrier."

"We're cancelling our membership in the carrier club," Legere said. His personal style breaks with industry practices as well. At the event, held in an art gallery in Manhattan's Chelsea neighborhood, Legere wore a magenta t-shirt under his blazer. He sported a pair of jeans and black Alexander McQueen sneakers with red laces.

As before, T-Mobile's prices generally undercut those of the bigger phone companies. The chief weakness is that its data network coverage is poorer in rural areas.

"T-Mobile realizes that they have to change the rules of the game, because under the current rules, they're losing, and they're going to continue to lose," said telecommunications analyst Roger Entner at Recon Analytics. He's skeptical that the new plans, alone, can change its fortunes.

"Even if they're $5 cheaper, will that be enough? They're already charging a significant discount to Verizon and AT&T, and they're losing customers," Entner said.

T-Mobile is a unit of Germany's Deutsche Telekom AG. —

Savings with T-Mobile

Over two years, the effective price for a smartphone and phone service would be hundreds of dollars less with T-Mobile than it would on AT&T or Verizon Wireless. At $580, it would also be cheaper than buying a $649 unlocked phone directly from Apple.