T-Mobile axing phone subsidies won’t be its death — let me tell you why

When T-Mobile finally struck a deal with Apple to bring the elusive iPhone to its network it essentially put an end to its issue with subscriber drop-off. Love it or hate it, the one thing people fail to realize is the importance of the iPhone to carriers, as it brings stability to a wireless providers’ roster of phones and plans.

I use the word stability because if you were to ask most people who don’t have T-Mobile (for a variety of reasons), usually talk about two things: bad network in small rural areas and no iPhone. It’s the no iPhone part that’s been the true thorn in the side of T-Mobile. But, starting in 2013 the company won’t have that problem anymore.

For new subscribers, the iPhone is the bait for pushing magenta’s ‘Value Plans’. And the Value Plans are the trigger to the company’s no subsidy phones agenda. To understand T-Mo’s position, you must step back for a second to fully grasp what T-Mobile has wanted to do all along, and that’s change the way subscribers in this country get their phones. Back in March, T-Mo’s CMO, Cole Brodman said the hardware subsidy model “distorts what devices actually cost and it causes OEMs, carriers — everybody to compete on different playing fields.”

He’s right. Carriers have done an excellent job of brainwashing customers, making them believe that a phone like an iPhone or Galaxy S III only cost $199; when it usually commands a price tag of around $650. Subsidies on that level cause users to devalue the hardware altogether. See, it’s just a bait and switch here. You get locked down for two years because you chose to take the subsidized price on that new phone.

Having no subsidies gives consumers the option of paying full price for a smartphone, or pay in monthly installments until the device is paid off. Both choices are more transparent, and doesn’t allow the carrier to sneakily add higher rates throughout the life of the contract. Another big reason for cutting the traditional subsidized model is the rising popularity of prepaid services; T-Mobile is praised for its non-contract plans and will only get better once the MetroPCS merger deal finalizes (the merger is a huge piece for this plan to work, so it must go through).

This brings us back to the iPhone. Next year Magenta has plans to sell the iPhone for $99 and a monthly installment of $15 to $20 that goes on top of your monthly plan (the cheapest prepaid plan starts at $50). T-Mobile will also apply phone trade-ins to any device with an installment plan. Not bad, huh?

Speaking as someone who has used installment payments under T-Mobile, I can honestly say it was a simple and painless process without any confusion. The great thing about these installments is there wasn’t a penalty for paying off your phone early — which essentially gives folks early updates without any commitments.

The only roadblock preventing this new strategy from truly taking off is the failure of grabbing consumer interest. T-Mobile will have to put in a crazy amount of effort in marketing and training to its foot soldiers to drive the message through to potential subscribers. This is the best way the fourth largest wireless provider can shake things up.

  • Anonymous

    I’m not so sure this move is going to be a boon for consumers. I think moving away from subsidies will definitely help T-Mobile’s bottom line, though.

    If we had a European-style mobile market where taking your business to another carrier was as simple as popping in a new SIM and restarting, then I’d say that T-Mobile’s Value Plans have a good chance of succeeding because it’s good, well, value. But in the system we have, getting the hardware at a steep discount is awesome. Most people don’t look at the total cost of ownership when they look at smartphones but if they did, most would get crappier phones.

    The other secret is that T-Mobile’s Value Plans aren’t actually that cheap, all things considered. Sure, if you’re bringing your own Nexus 4 and don’t want to have to worry about throttling at all, it’s the bomb but StraightTalk costs $45 a month and depending on what type of user you are, Virgin Mobile can get your through your days for $35 a month.

    Don’t get me wrong, I dig what T-Metro is trying to do but I’m not so sure that it’s a winning bet.

    • What’s up, Marin! All your points are valid. I refrained myself from writing about the other prepaid plans to focus on what T-Mobile is trying to accomplish, being the first “major” carrier to go for “value” instead of the typical high rate plans.

      That being said, I think T-Mobile is sneakily targeting other prepaid networks with this subsidy move. They may not have the advantage when it comes to price, but they do with phone options. Offering the top flagship phones will surely intrigue those non-contract loving folks.

  • Bajamin

    The major problem here is that with the installment plan the cost is the same (roughly) as the old classic plans. The plans need to be about $20-30 for unlimited to really shake things up, until that happens the net cost per month is so close that it is not enticing enough to change the status qou. What would help the most is if other carriers followed suit and kept the prices high. ARPU is over 40% on these Value plans, there is room to lower the price.

  • Oleg K

    I am currently working for T-Mobile and it may seem that Value Plan is a great thing from company’s point of view, but the real problem is that Value Plan is a really tough sell even against T-Mobile’s own Prepaid plans. Customer is paying full price for his device either way but on top of that customer pays more in taxes and fees and still end up being locked up in the contract.

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