T-Mobile CEO confirms the iPhone and the death of phone subsidies

I'm excited that T-Mobile is looking to boost its network and committing to a bit of a different direction than many US carriers have taken. AT&T and Verizon are going toward on-contract, subsidized devices paired with expensive plans. Sprint seems to be trying to price discriminate with customers who want the latest devices paying AT&T and Verizon style rates on-contract with Boost and Virgin trying to pick up cheaper customers who are willing to live without the latest devices and keeping them off the latest network that Sprint customers get access to (4G LTE). T-Mobile seems to be trying a somewhat European strategy. It's clearly being altered to live up to American appetites (for example, they're going to finance what would have been the device's subsidy). This may not turn out to be something amazing, but it's exciting to see one of the 4 wireless companies pushing for a new direction.

It's also good to see T-Mobile pushing fast for 4G LTE. While HSPA+ 42 does offer good speeds, the marketing perception won't change and the fact that ping times are worse on HSPA+ does mean that important real-world use cases can lag. I'm a little dubious of their schedule. Sprint started working on LTE a long while ago and thought they would have 120M POPs covered by the end of 2012. Considering that they've been launching more rural areas and haven't been able to launch in several cities they announced a while ago, it seems like it's going to take Sprint a good while longer than they had anticipated. T-Mobile is saying that they will have 100M POPs covered half a year from now and 200M POPs covered a year from now. That's ambitious. Judging from Sprint's slipping release schedule, it might be prudent to think that T-Mobile's projections might also slip.

However, if T-Mobile's dates slip on LTE a bit, it shouldn't hurt them too badly. Their customers can fall back to HSPA+ 42 and that provides a good network experience (if not as good). This is in contrast to Verizon and Sprint customers who fall back to EV-DO when out of LTE coverage range. That probably doesn't matter for a lot of Verizon customers, but Sprint is still working to cover top markets.

T-Mobile does have some good assets. The fact that they're going to be able to launch with 10MHz LTE will be good since it should match what Verizon and AT&T are deploying and out-do Sprint's 5MHz deployment. If they merge with MetroPCS, they will have a good spectrum position to continue growing LTE on including 20MHz LTE channels. Lower/different pricing combined with unlimited 4G might start attracting customers. Part of this is just undue excitement over the prospect of a re-invigorated competitor in an industry dominated by two carriers. Still, maybe T-Mobile will pull it off.

I like T-Mobile's plans; I chopped my bill from $90/month to $30/month with unlimited data use by switching over and bringing my own phone.

What doesn't make sense right now is that their no-contract "Monthly4G" plans are a better value than the "value" plans. They have the same service levels at the same prices, but without the contract.

If 80% of their activations are choosing the value plans, are these people simply not noticing there's another option in the website menu? I can't imagine why you'd sign a contract for no benefit.

If you want to see a microcosm of this, look at the Canadian cellular market. Most of the budget players are now on a 'tab', where they effective lend you $200-400 which is prorated. The funny thing is the math they use:

On WIND, for example, they give you 10% credit for the value of your bill every month. On a $50 plan (which is high for them), you get a $5 a month subsidy for your phone. If you stay for three years, they let you off the hook.

Meanwhile, the 'Big Three' (who own most of the budget players as well) offer a prorated subsidy: you get 1/36 of the value of your subsidy monthly, over three years. So, on an iPhone, you can get up to $20 a month in subsidy. Clearly this more than outweighs the extra cost of the plans.

What's funny is, people are afraid of 'contracts', even contracts with prorated termination fees. I once got the scary contract talk from a WIND salesperson, so I drew a little diagram on their chalkboard of the value over time of each contract. He saw the sharp drop at the end when they released the remaining $200 of debt, and his jaw dropped a little. People don't really think about this stuff rationally. Bell has even started giving a 10% discount monthly if you buy a phone outright, which makes absolutely no sense unless someone handed you a phone for free.

My point being, if experience in Canada proves anything, people will flock to this as long as you market it properly.

The only reason T-Mobile is doing this is because they have a ton of unused bandwidth due to low subscriber numbers, so they're trying to differentiate themselves from their competitors. Ultimately, it's much more profitable to use the subsidy model, because it allows you to hide the true cost of the phone from consumers, most of whom are too stupid/ignorant/rich to realize/care they're getting ripped off.

I've been using T-Mobile precisely in this way for over 5 years to be able to switch phones at will and keep recurring costs low and off-contract.

Their unlimited voice-text-2GB 3G/4G data plan has never cost me more than $50/month per phone including all taxes and surcharges.

Wait, I thought Google was buying T-Mobile! Kidding...

I think this is great news for Google. Why? Because unlocked, unsubsidized phones with cheap data are going to be brought to the forefront of the consumer's attention. Consequently, margins are going to go down for carriers (overall -- individually, TMO might get a boost) and phone producers as people are able to quickly move to the carrier with the cheapest data, to the phone which offers the best features per dollar. Google, in turn, will benefit as more and more people move to cheap phones with data-heavy plans -- an advertisers dream.

Really awesome, but 1900MHz doesn't penetrate the low-e coating that my employer uses on its office buildings. AT&T's 850MHz HSPA and 700MHz LTE do, so I can't switch, bad though I may want it.

This is great. I'm always reminded of my mother, who I handed down my 2G iPhone to a few years ago. She's more than happy with it, but only has data on wifi because adding data onto her plan would triple the cost of it, or some other crazy margin.

She'll be much more likely to sign up if she can get it more affordably, with her existing phone. She, and many others I suspect, have no need to get a new phone every two years.

Never bank on explaining math to your customers.

Sounds good. In general, it's time for more people to stop using contract plans with subsidized devices and higher monthly fee, and to start using non contract plans with full price devices and lower monthly fee. Of course if these monthly prices would really be lower.

As of yesterday 3G works on T-mobile iPhones in Austin.

I only switched from t-mobile because my unlocked phone couldn't use 3G on their network. It'll be very, very tempting to go back if they have decent coverage these days.

It doesn't seem clear that unsubsidized iPhone can work in the US, but I guess we'll see.

It'll be interesting to see if anything comes of this w.r.t. the consumer price pressure that will then be directly on phones, currently the subsidy hides that from the consumer allowing handset manufacturers to set prices with the carrier

If they themselves quote a price for the iPhone starting from 650$, how is 99$ + 20$ a month for 20 months = 499$ dollars total full price? I'm still 150$ short and that's assuming a 0% interest rate.

I recently got a iPhone4 from Virgin Mobile USA for $349 and $30/month plan and it's working just fine. Glad to see others are going this way as well.

So why aren't they already doing this with the Nexus 4 and offering it for $300 unlocked, instead of charging $200 with contract? They can start doing this today. They don't have to wait for the iPhone - unless they made a deal with Apple that they can't sell a Nexus phone for half the price of what the iPhone will be when they'll sell it unlocked.