commentary T-Mobile USA wants to shake up the status quo in the wireless industry to spur its turnaround. At the same time, it could change the way consumers think about how they pay for their services.
T-Mobile CEO John Legere yesterday said the carrier would eliminate contract plans next year, moving completely to its no-contract "Value" plans. In doing so, it will be the first nationwide carrier to go all-in on the prepaid business, foregoing the age-old (and typically more lucrative) practice of signing customers up to long-term contracts.
The carrier, a unit of Deutsche Telekom AG, has already been seeing a shift towards the no-contract business as many of its so-called postpaid customers have fled the service, leaving for more expensive carriers that offer the iPhone, or less expensive regional or bargain prepaid service providers.
That T-Mobile is cutting out contracts isn't as huge a surprise as it initially appears; much of the wireless industry is investing in prepaid since there is more opportunity for growth here. T-Mobile itself lost nearly half a million contract subscribers in the third quarter, offset by a gain of 365,000 prepaid customers.
But by coupling its no-contract plans with a potential line-up of affordable flagship phones -- something Legere promised yesterday -- the carrier could help shift the mindset on what exactly consumers get for what they pay.
As an example, Legere said consumers would be able to get the "most iconic device in the world" -- a hint at the iPhone -- for $99 and a monthly installment of $15 to $20. Legere even pulled out the iPhone out of his jacket pocket to demonstrate, but it was unclear whether he meant the latest
iPhone 5, or the more affordable older models. It's likely that T-Mobile would also bring in other big-name devices such as Samsung Electronics' Galaxy S line.
The details of how all this will work is unclear. Presumably, consumers will still have to go through credit checks so they don't just walk away with the devices. Legere said that consumers would also be able to trade in their phone for fair value if they wanted to upgrade to a new device.
In doing this, T-Mobile may be able to get past the dilemma that other prepaid carriers face: the inability to juggle the best smartphones at an affordable price with a low monthly plan.
The prepaid carriers are able to offer a lower monthly rate on voice, text message, and data services because they typically don't offer any kind of subsidy on their devices. The nationwide carriers do, but ask consumers to sign a two-year contract in exchange for that discount.
Will the iPhone 5 come to T-Mobile at an affordable price?
(Credit:
Sarah Tew/CNET)
As a result, an iPhone 5 at Verizon Wireless or AT&T starts at $199, while Leap Wireless, known to consumers as Cricket Wireless, sells it at $499.
The prepaid carriers have long been unable to get access to the best smartphones right away, and will charge a high upfront price for those high-end devices they do get.
While the longer term savings are potentially greater, consumers looking for the latest and greatest phones tend to shy away from the big one-time hit and stick with the national carriers instead.
But if T-Mobile can actually offer the best smartphones at the lowest and charge a low monthly fee, it could actually change the way people view prepaid services for the better. Better yet, Legere said this is one move T-Mobile's larger competitors couldn't -- or wouldn't -- match.
T-Mobile could use all the advantages it can get. While it has changed up its marketing message and gotten more aggressive in its attempt to nab customers from other carriers, it continues to struggle with growth and is well behind the others when it comes to its next-generation LTE network deployment.
The elimination of contracts next year is supposed to be the first step in a series of industry shake-ups. If T-Mobile makes good on this promise, it should definitely be a fun year for the wireless world and consumers.
On T-Mobile killing the contract: It's about time
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