T-Mobile has finally officially unveiled its new Simple Choice contract-free mobile phone plans. It's a ploy that runs counter to the way the entire industry is structured in the United States. Will it last?
For the vast majority of Americans, having a smartphone means paying a subsidized price for a phone in exchange for signing a contract agreement, typically two years.
So an iPhone may have a retail cost of $600, but almost no one pays that price upfront. Instead, they pay $200 for the iPhone and agree to stay with a particular carrier for 24 months. The cost of the monthly plan is inflated to account for the money the carrier lost on the phone, but even after two years, if the customer stays with the same carrier, the cost of the plan doesn't drop, even thought the carrier has more than recouped the initial cost of the phone.
T-Mobile is trying something different. They're betting that disgruntled customers will prefer not to be locked into a two-year contract, even if in practice they stay with the same carrier for years at a time.
So T-Mobile's new plans don't require contracts. Instead, they're month-to-month plans under a single unified pricing structure. They include the same services as contract plans from other carriers, but customers can actually pay off their phones. The initial cost for a handset is also subsidized, but a (clearly-labeled) charge on the monthly bill goes toward paying off the handset.
Pay it off all at once, upfront, or at $20 a month. After two years of $20 monthly payments, the phone is yours and the charge goes away. Stay on the same plan with the same phone for $20 less each month, or upgrade to a new phone. Or trade in your phone earlier to get something newer sooner.
If traditional mobile plans are like gym memberships, with their yearlong commitments and monthly dues, the new T-Mobile plans are like yoga classes. Pay $20 each time you show up.
After factoring in the phone charge and data package, the T-Mobile plans may not be much cheaper for most people, but they are a move in a less restrictive direction for an industry that is stifled by customer restrictions. Hopefully it will rub off on the competition.