T-Mobile Plans To Stop Subsidizing Smartphones And End Long-Term Contracts



T-Mobile recently announced that they’ve reached an agreement with Apple to start selling the iPhone in 2013. Coming on the heels of their iPhone announcement, T-Mobile says they plan to stop subsidizing smartphones in 2013 to give customers more freedom.

All four of the major U.S. carriers offer smartphones at a subsidized price, giving subscribers a discount in exchange for tying them to a two-year contract. The contract helps the carriers retain customers, and the lower price point of the smartphone makes customers happy, but it also ramps up costs and restricts customers from upgrades. T-Mobile says they want to get rid of that system entirely.

T-Mobile’s Chief Executive, John Legere, said that T-Mobile plans to do away with subsidies at some point next year. The move will mean lower upfront costs for T-Mobile, but it should appeal to customers as well who don’t want to be restricted by the upgrade cycles and contracts that they would run into at Verizon, AT&T or Sprint.

“We think there is huge room for a challenger to change some of that, in a way that the larger players will not be able to or will choose not to respond to.”

Legere said that customers will be able to upgrade their phones when they want and can even trade in the device. 80 percent of T-Mobile’s current new phone activations are from customer who decided not to pay the subsidy, so the belief is that the new policy is just an adaptation to what customers already want.

T-Mobile won’t be the only place to buy an unlocked, unsubsidized phone though. Google’s Nexus phones are typically offered at an unsubsidized price online a few weeks after their launch date, so is the iPhone 5 and Samsung’s Galaxy S3. In the end, removing subsidies probably won’t be enough to bring back customer’s en masse to T-Mobile, but with its back against the wall it’s great to see T-Mobile try to shake things up.

Source: Reuters