Last month, T-Mobile introduced its new “un-carrier” plans, which — along with the launch of Apple‘s iPhone on the T-Mobile network — are meant to grab market share back from larger rivals AT&T , Verizon , and Sprint . The essence of T-Mobile’s idea is that it will not subsidize phone purchases, but plans will be cheaper and customers will not be locked into two-year contracts. While many customers are put off by cell phone contracts and the high cost of service, I am skeptical that T-Mobile’s plan will take off. In fact, the strategy reminds me of another major company that recently tried (unsuccessfully) to “retrain” customers: J.C. Penney.

The big idea
Typically, the three big carriers subsidize customers’ phone purchases with the signing of a two-year contract. AT&T, Verizon, and Sprint don’t do this out of the goodness of their hearts. Their voice, text, and data plans are priced well above cost, and the two-year contract assures the carriers that they will earn enough profit to recoup the subsidy. T-Mobile’s idea is to create a more straightforward and honest pricing scheme. Plans will be cheaper, and customers have the option to bring their own GSM phones, or to buy a phone from T-Mobile, which can be paid for up front or financed over two years.

For example, the iPhone 5 will be available beginning Friday for $579.99 up front (probably close to cost for T-Mobile), or for $99.99 down and $20/month for 24 months. This can be combined with an unlimited talk/text/4G data plan that costs $70 per month (2.5 GB of data costs $60 per month, and 500 MB costs $50 per month). The total cost of the unlimited plan, including phone payments, would be $90 per month, with $99.99 down.

For customers, a major advantage of T-Mobile’s new plans is that there is no “use it or lose it” upgrade cycle. At the other three carriers, plans are more expensive (to cover the cost of big phone subsidies), which means that customers who do not take advantage of the option to upgrade every other year are overpaying. Customers who finance phones through T-Mobile will be able to upgrade after two years if they want to do so, but they can also save money by upgrading less frequently.

Apples-to-apples
Comparing T-Mobile’s plans to those of other carriers is complicated by the fact that the four big carriers do not offer fully comparable services. Verizon does not even offer individual data plans any more: everything is a shared/shareable plan. The only true equivalent to T-Mobile’s unlimited plan is Sprint’s “Simply Everything” plan, which is $109.99 per month. That’s significantly more than the $90 per month T-Mobile customers would pay when financing an iPhone. On the other hand, for people who can make do with 450 anytime minutes (for calls before 7 p.m. on weekdays), Sprint offers an unlimited text and data plan for $79.99 — $10 less than the …read more

Source: FULL ARTICLE at DailyFinance