Article
T-Mobile Chips Away at Tyranny of Cell Contracts
Starting three weeks ago for smartphones and today for laptop adapters, T-Mobile will charge you less for using data over its mobile broadband network if you buy the phone or cell modem outright, instead of signing up for a two-year contract and letting T-Mobile subsidize your purchase.
Sounds pretty obvious, right? But T-Mobile is the first company to change the terms for one of the most venal and least endearing traits of mobile carriers.
Carriers have made the argument for many years that they eat a lot of the price of a phone, and make it up from monthly service fees. That's why they charge you $175, $200, and even crazily higher termination fees when you cancel before two years is up. (Let's ignore the fact that until the FCC started to push last year, those termination fees were the same at 23 months as they were at one, even though you'd long paid back the phone subsidy.)
But what if you pay for the phone up front? An increasing number of carriers let you buy the equipment at an unsubsidized, quasi-retail price, and some let you purchase service on a month-by-month, no-contract basis. That service, however, still costs the same, meaning the carrier is making $10 to $20 a month on top of its profit from the service itself.
T-Mobile, headquartered in Bellevue, is the fourth-largest U.S. carrier, and has to fight hard to be heard. Now, it's trying out price.
In February, T-Mobile said if you pay full price for a smartphone, you pay $20 less per month for a service plan (starting at $60 instead of $80 with data, text messaging, and minimal voice minutes). The $480 difference over two years outweighs the subsidy T-Mobile eats, in some cases by well over $200.
Now, it's bringing the same approach to data. All four major U.S. carriers offer 3G data service for laptops through plug-in cards and USB sticks. All charge $60 per month for up to 5 GB of combined upstream and downstream data during each billing period. (Overage fees are crazy: from 5 cents to 20 cents per month per MB, which is $50 to $200 per GB.)
T-Mobile said today it would change that. Buy a $130 USB modem, pay $50 for the 5GB plan. Its 200 MB/month $30 plan drops to $20. And, as T-Mobile already offered, you can cancel the plan at any time. The modem is $20 with a two-year contract commitment, so the difference is $110.
You can get similar service from Virgin Broadband, now wholly owned by Sprint Nextel. Virgin will sell you a $100 USB modem, and then units of usage: $10 for 100 MB used within 10 days of activation; or 30 days' time to use 300 MB ($20), 1 GB ($40), and 5 GB ($60).
While T-Mobile is cheaper at $50 per month for 5 GB, Virgin doesn't charge for overages; it cuts you off until you buy another unit of service. That keeps your costs under control.
T-Mobile is taking a bold move: cutting revenue to make customers happy and to fix the logic (and fairness, too) in the current subsidy situation.
But as the fourth-largest carrier, T-Mobile may not shift enough customers to force changes at the larger operators. Here's hoping.
Sounds pretty obvious, right? But T-Mobile is the first company to change the terms for one of the most venal and least endearing traits of mobile carriers.
Carriers have made the argument for many years that they eat a lot of the price of a phone, and make it up from monthly service fees. That's why they charge you $175, $200, and even crazily higher termination fees when you cancel before two years is up. (Let's ignore the fact that until the FCC started to push last year, those termination fees were the same at 23 months as they were at one, even though you'd long paid back the phone subsidy.)
But what if you pay for the phone up front? An increasing number of carriers let you buy the equipment at an unsubsidized, quasi-retail price, and some let you purchase service on a month-by-month, no-contract basis. That service, however, still costs the same, meaning the carrier is making $10 to $20 a month on top of its profit from the service itself.
T-Mobile, headquartered in Bellevue, is the fourth-largest U.S. carrier, and has to fight hard to be heard. Now, it's trying out price.
In February, T-Mobile said if you pay full price for a smartphone, you pay $20 less per month for a service plan (starting at $60 instead of $80 with data, text messaging, and minimal voice minutes). The $480 difference over two years outweighs the subsidy T-Mobile eats, in some cases by well over $200.
Now, it's bringing the same approach to data. All four major U.S. carriers offer 3G data service for laptops through plug-in cards and USB sticks. All charge $60 per month for up to 5 GB of combined upstream and downstream data during each billing period. (Overage fees are crazy: from 5 cents to 20 cents per month per MB, which is $50 to $200 per GB.)
T-Mobile said today it would change that. Buy a $130 USB modem, pay $50 for the 5GB plan. Its 200 MB/month $30 plan drops to $20. And, as T-Mobile already offered, you can cancel the plan at any time. The modem is $20 with a two-year contract commitment, so the difference is $110.
You can get similar service from Virgin Broadband, now wholly owned by Sprint Nextel. Virgin will sell you a $100 USB modem, and then units of usage: $10 for 100 MB used within 10 days of activation; or 30 days' time to use 300 MB ($20), 1 GB ($40), and 5 GB ($60).
While T-Mobile is cheaper at $50 per month for 5 GB, Virgin doesn't charge for overages; it cuts you off until you buy another unit of service. That keeps your costs under control.
T-Mobile is taking a bold move: cutting revenue to make customers happy and to fix the logic (and fairness, too) in the current subsidy situation.
But as the fourth-largest carrier, T-Mobile may not shift enough customers to force changes at the larger operators. Here's hoping.
