T-Mobile Opens Up The US Cell Phone Market
Today T-Mobile became the first carrier in the US to offer customers the following choice: sign a new 2 year contract and get a cheap phone, or bring your own phone to the network and get the same plan for a lower monthly fee, with no commitment.
This is really interesting. Bear with me.
For years, US carriers have locked customers into long-term contracts by offering them a ‘cheap’ new phone. It seems like a great deal, until you realize that the carrier has crippled the phone. Some features don’t work at all. Some require you to pay the carrier an extra fee. And there are lots of restrictions on third-party apps (like Skydeck).
So why don’t more people pay up for the unlocked, uncensored version of their phone?
As recently as 2007, most US carriers did not allow you to bring your own phone to their network. They loosened up that year, partly because of the public debate about wireless net neutrality. Still, consumers kept taking the blue pill: the restricted but subsidized phone. Some argued that American consumers were in love with the words ‘free’ and ‘cheap’, and that for their own protection, market-distorting handset subsidies needed to be regulated or banned.
The real problem was that when you signed a 2-year contract with a carrier, the cost of a ‘free’ phone was built into the monthly fee whether you wanted it or not. You might be smart enough to know that the phone wasn’t really free, but you couldn’t do anything about it. If you declined the carrier phone, the only money you could save was the upfront price — zero, if the phone was free. And if you brought your own phone to the network, you ended up paying for two.
Today, T-Mobile became the first carrier in the US to offer monthly plans with and without a phone at different price points. At the high end, the new Even More Plus plan promises unlimited voice, text, and web access for $99.99 if you take their phone and $79.99 if you don’t. Of course, the $99.99 plan requires you to sign a 2-year contract, so that T-Mobile can earn back the subsidy. For the first time in the US, you can see that the true cost of your phone is the sticker price plus $480. But more importantly, for the first time you can decline that phone and save not just the sticker price but the $480 too. If you have an unlimited plan with AT&T and you are happy with your current phone, you can switch to T-Mobile and save $20 per month. If you are in the market for a new smartphone, your budget just went up by $480.
Everywhere else in the world, consumers buy their phones and phone service independently. That’s because everywhere else in the world T-Mobile’s new plan is the norm. If other US carriers follow T-Mobile’s lead, it could transform the domestic market.
But T-Mobile has very little to lose, because they place fewer restrictions on their phones than any other big carrier; their business model doesn’t depend on you taking the blue pill. Who will be next?