The rumor mill is in full swing again. This time T-Mobile is in the spotlight. The 4th largest carrier in the U.S. has been losing customers at an alarming rate the past year, and along with the failed AT&T buyout, it leaves them in a vulnerable position. While they are moving like crazy to expand their reach and building out their LTE network, they can’t compete on network reach alone. Even with the purchase of MetroPCS, AT&T and Verizon dwarf their network reach on a tower-to-tower comparison. So instead of taking on those two wireless giants head on, T-Mobile is trying a different angle, by going to a no contract model, which is very similar to what the rest of the world uses. Several smaller carriers, like Straight Talk and Cricket, have been doing this for a while, and so far they seem fairly popular. Here is what you need to know if they do indeed change their business model.
What are the advantages for the customer?
There are a couple of advantages to T-Mobile’s no contract model. The first big advantage is that you don’t have to sign your life away with a two year contract with stiff early termination fees. This means that if you sign up for T-Mobile and it isn’t up to your standards, you can drop the service and take your business elsewhere. If something in your financial situation changes to where you can’t afford your expensive plan, you can cancel it, and move to a pre-paid or lower cost pay as you go plan with no back breaking fees.
The second big advantage is the cost of their plans should go down. If T-Mobile’s current $30 plan with 100 minutes and unlimited text/data is any indication of future pricing, then it will definitely be more attractive to the average customer. The main reason contract plans are so expensive is due to carriers subsidizing the high cost of top smartphones down to a level that was palatable for the average consumer.
What are the disadvantages for the customer?
There are also a couple of disadvantages to this model. The first is the total sticker shock people will have when having to buy a new top of the line smartphone. A shiny new iOS iPhone 5 will set you back $650, and that is the 16GB model (which T-Mobile is rumored to be getting soon). The HTC’s new Android powered One X+ will cost $550, while the Nokia Lumia 920 Windows 8 phone is $450. To help with this sticker shock, it is rumored that T-Mobile will finance your phone into 20 easier to chew payments.
The second disadvantage is that you will have to do a little bit of homework on your phone. Unlike Europe, which is mostly a GSM network, that is moving to LTE, the U.S. is a little more complicated. Not only do we use GSM (AT&T & T-Mobile), but we also use CDMA Networks (Sprint & Verizon). Toss in LTE on top of that, and it gets a bit messy. With the CDMA networks being the backup up to Verizon and Sprint’s LTE networks, they won’t be going away any time soon (rumored to be around 2021). So what does this have to do with you? Well, it means that if you buy a phone for T-Mobile, you will only be able to move it to AT&T, or Straight Talk and only if they have overlapping spectrum frequencies. You will need to do a bit of research to make sure you can move your phone across networks. This should get easier in the future, when carriers are all moved to the latest LTE networks.
The third disadvantage is your phone will need to be “unlocked.” This means that all the cellular frequencies that the phone can use are usable. Most carriers don’t want you leaving to another network, so they lock down all the frequencies on the phone but the ones they use on their network. To make matters worse, the U.S. government just made it illegal to unlock your own smartphone. To get around this, you will need to see if your provider will unlock your smartphone for a fee, or get a world phone from a third party vendor like the Google Nexus 4, which comes out of the box unlocked.
So what do I think about all of this?
Personally I welcome the open system that most other countries are using, and hope more carriers follow this trend. This makes wireless providers compete on service and price rather than luring you into a lengthy contract based on a heavily subsidized “exclusive” phone. It will also open people’s eyes as to the true cost of the phones they are using. It might just encourage price drops across the board when people are picking up cheaper but full featured smartphones over the top of the line smartphones like iPhone 5 which has huge profit margins.
Photo credit to All Things 3D