10 Years Later, T-Mobile Finally Kills Phone Subsidies: And It Doesn't Mean You'll Pay More

from the the-subsidies-scam dept

We’ve been writing about mobile phone subsidies for quite some time. As you probably know, most of the time (especially in the US) when you buy a mobile phone, it’s heavily subsidized by the mobile operator, which is part of the reason why they require a long-term contract with expensive penalties if you break the contract early. Of course, they really make up that “subsidy” by charging higher prices on the service, and they do so over such an extended period of time that the higher service fees almost certainly outweigh the amount of the original subsidy. So, despite it appearing “cheaper” up front to consumers, subsidies are frequently against the consumer’s best interest, and somewhat silly. We all buy computers without subsidies from our ISPs. Why shouldn’t we do the same with mobile phones?

Even though these subsidy programs really benefit the mobile operators the most, they’ve been complaining about them for years. It really was almost exactly a decade ago, that we wrote that operators in the US were exploring the idea of ditching subsidies, even as we also discussed how mobile operators didn’t seem to realize that those subsidies probably helped the operators more. However, it took until now for one of the major operators to finally make the break. T-Mobile has officially announced the end of phone subsidies. The T-Mobile plan is actually pretty smart and consumer friendly. You’ll pay $99 upfront, and then effectively “finance” the rest of the phone purchase with $15 or $20 payments added to each monthly phone bill — but those payments go away once the phone is paid off. And, yes, the fees for ongoing service are cheaper. So, as long as you keep your phone past the time when you pay it off, you’re likely to save money.

As some are pointing out, this actually could save consumers are fair bit of money and allow them to avoid a lot of hassle later. That’s because without subsidies, the reasons for super long term contracts become less important. That also means operators have less reason to focus on “locked” phones, and can be much more open to allowing unlocked phones on their network.

And… at the same time, the massive growth of the smartphone market worldwide, might even mean that you don’t even need to pay more for your smartphone. Jimmy Wales recently noted that his smartphone of choice was a cheap Android-powered smartphone, made by Huawei in China and sold in Kenya for $50. As we’re now reaching massive economies of scale for smartphones, and as Moore’s law churns along, the phones themselves can get cheaper and cheaper — as we’ve seen with lots of other technology, including computers.

As such, it’s not hard to see this working out spectacularly for consumers, where both the phones and the service can end up being cheaper, without the annoying lock-in and lock-down with subsidized phones. Hopefully other US operators will start to follow suit as well. They’ve only talked about it for a decade. And with T-Mobile leading the way, perhaps others will finally take the plunge.

Filed Under: , ,
Companies: t-mobile

Rate this comment as insightful
Rate this comment as funny
You have rated this comment as insightful
You have rated this comment as funny
Flag this comment as abusive/trolling/spam
You have flagged this comment
The first word has already been claimed
The last word has already been claimed
Insightful Lightbulb icon Funny Laughing icon Abusive/trolling/spam Flag icon Insightful badge Lightbulb icon Funny badge Laughing icon Comments icon

Comments on “10 Years Later, T-Mobile Finally Kills Phone Subsidies: And It Doesn't Mean You'll Pay More”

Subscribe: RSS Leave a comment
ltlw0lf (profile) says:

Re: Re:

Damn, makes me want to switch back to T-Mobile now…

They are the cheapest LTE data provider right now (when you can find it.) I spend ~$26 a month for 2GB high speed/unlimited data from them. Far cheaper than what I am paying AT&T and Sprint. If they had better coverage, I’d drop the other two.

However, they are dropping the subsidies, but apparently not the contract. I am still locked into a 2-year contract with them and I brought my own data device. I hope they will drop the two year contract and the “contract termination fees” with this move, but I suspect not.

btrussell (profile) says:

Re: Re: Re:2 >>We all buy computers without subsidies from our ISPs.

I had a computer years before I had an ISP.

“We all buy computers without subsidies from our ISPs.”
I thought he may have meant a modem/router.

I will also continue to buy my own computers and do with them as I want.
Yes, I want to do that. Yes I really do want to do that. Yes. Yes. Yes. How the fuck do I downgrade to XP? Never mind, Linux works great!

Jim L (profile) says:

Not any more

Was with T-Mo since Aerial, then Voicestream

Was considering their $50 unlimited plan (w/2 year contract), but instead I decided on trying the Republic Wireless Beta.
Had it almost 2 months now and while I had to overpay for their only phone and it’s not a cutting edge device, the service is only $19 a month. A few bugs (they are still in Beta after all), but overall I’ve been very happy.

Lovin a new disruptive technology and soon maybe, the newest, coolest phone.

Jeffrey Nonken (profile) says:

T-Mobile lost me as a customer when they screwed over my wife and, separately, me, in essentially the same transaction. We’d been long-time loyal customers who first saw their customer service deteriorate, and then they broke promises, and they stuck me with an expensive new contract.

Apparently their definition of “loyal customer” is “somebody we can thank for being a loyal customer while we screw them over”. (Anybody else would be “somebody we can thank for choosing T-Mobile while screwing them over”.)

OK, end of rant. So I paid my early termination fee (for what? I didn’t get a subsidized phone (oops, sorry, I did say end of rant)), I moved on to a discount service and T-Mobile has earned my contempt, if not hatred.

But I’ve been following this story online and have to say that it sounds like they’re actually doing something right this time. It’s high time this happened. The subsidized phone thing has always been basically a scam. Any word if they’ll be selling their phones unlocked? Probably not, at least not at first, but if they do I might even stop hating them.

So, um, I find myself in the position of cheering them on whilst simultaneously despising them. The cognitive dissonance is making my brain itch.

Anonymous Coward says:

I believe the reason major cell phone carriers are starting to drop long term contracts, is due to competition from pre-paid phone services like Walmart’s Straight Talk service. I bought an LG Merit, Android gingerbread smart phone from Walmart for $130. I pay $45 a month for a pre-paid phone card that allows me unlimited calling, text, and internet usage. The major carriers are now ‘forced’ to compete with that. Major carriers are not dropping subsidized phones with long term contracts because they ‘want too’, they’re doing it because they ‘have too’.

Got to love wireless technology. It’s easier to have competition in the market, and that competition forces prices to come down. Unlike the cable carriers that can lock in monopolies and charge outrageous prices for internet, phone, and TV service. Examples of such cable monopolies are Comcast, Verision, Warner Cable, AT&T, Charter… the list goes on and on. I pay close to $50 a month for Comcast internet, with 400KB/sec download speeds and 80KB/sec upload speeds. That’s as cheap as internet gets in my area, because Comcast is my ‘only’ choice.

Anonymous Coward says:

Is it a subsidy?

Most plans I see fallow the calculus:

service per month + (2 * price of the cellphone)/24 months.
The termination fee will be equal to the valor of the cellphone price minus number of months already paid.

To me is more like financing the product than subsidizing it.
Only those not paying attention fall for it, thinking they will get a cheaper phone, in fact they end up paying double the price.

Anonymous Coward says:

Re: Re:

Let’s say that a carrier, such as Sprint, pay Apple $1200 for the iPhone5 on a per-unit basis. Sprint then charge the customer $479 up-front to pay for the phone, then charge $90/mo for the call/data plan over a 24-month period.

So that’s $2160 over the plan just to use the phone. If the cost of the phone is $479 up-front, then that phone is being subsidized by Sprint to the tune of $721, which is part of why the cost of the price plan is so high.

In this case, you pay a much smaller up-front fee and a higher premium on the typical plan, but, and this is key, you pay for the phone in installments. This will be higher in the short-term, but over the length oft he contract? We’ll have to see the hard numbers for that assertion to be confirmed.

Anonymous Coward says:

Re: Re: Re:

iPhone 5S = $149 (Source: Best Buy”

Prices of the iPhone without a plan:

16 GB $772
32 GB $886
64 GB $1,008

Source: The News Tribe: Apple iPhone 5 release in Asia: Date, countries and price By Daniel Clark Sep 14th, 2012

Don’t see the different though if you pay $2659 dollars at the end of your contract for a phone that has a maximum value of $1200 you paid that phone 2 times over and then some. It is being financed in installments not subsidized they just call it that for some reason probably marketing.

In the case of T-Mobile though they are being up front and honest about what they will charge they are not trying to hide anything because in this case T-Mobile is the small player that is struggling to gain market share and in fact is losing some customer base to others, and so they decided to do the bare minimum and that honesty could in fact pay off in the future aside from the fact that they can’t do “exclusive contracts” with anyone, they don’t have the money to do “exclusive” so they opt for the free and open way, this was not done for customers, was done out of necessity which is good for customers none the less, this is what is supposed to happen in a more bigger scale, in a true free market.

Instead what we got with telcos in the US is an oligarchy that rules supreme and do as they please BS’ing the public about their costs and artificially raising those prices to maximize profit without virtually any natural barrier to counteract that behavior.

T-Mobile is renaming its plan probably to differentiate themselves from their competitors, but they are doing basically what others are doing already which is financing through installments the hardware, this is not a case like game consoles that manufacturers actually lose money on the console to make up through the sales of software, the price of the hardware was embedded on the operating cost instead of being paid up front is like getting a loan from a bank, you will pay that money with interests if you accept that plan from the incumbents players, what T-Mobile did was get rid of the interests and exclusive garden of hardware because they can’t compete on those terms and that is fine. I just pointed out that you are not subsidizing anything when you buy a phone from any other carrier you in fact is paying doubt the price of the phone and that increase operating cost that never goes away is just free money after 2 years, if you don’t change your phone after 2 years that money keeps getting pocket by your service provider is free money for them, for the customer it doesn’t matter he would have to pay that amount no matter what carrier he was in unless he was smart enough actually save the money himself and buy the phone, is just adding $50 for a $1200 iPhone 5S, with most others equivalent phones in the price range of $300 dollars, which would mean a person having to save $12.5 dollars a month for 2 years to buy one.

Why people just save the money themselves and consider that money spent which means you will not use it for emergencies or anything just like you can’t use it if you give the money to other company with the benefit being you are managing your money and not having to pay high prices to have it administered for ya.

It would be cheaper half the price to be exact, because that so called “subsidy” is a loan in disguise from what I can tell, it is a financial product and anybody who ever worked in a bank knows that means it is a way to extract money from the client.

The cruel irony in this is that, these types of operation prey on the people most in need, exactly the people who needs help the most, the poor. Maybe that is part of growing up, maybe people need to be duped to start paying attention.

On a last note, although I find it immoral to see what carriers do, I don’t think it should be illegal, what should happen somebody should start to break those oligopolies that have entrenched themselves in American and American politics that they pass laws and regulations that keep strengthening their grip on the instead of loosening it, this is why competition is needed to if not eliminate abuse minimize it and put it in its place.

Anonymous Coward says:

Re: Re: Re:

Do you ever wonder why the price plan varies accordingly with the price of the phone you are “subsidizing”?

normal operating cost for a carrier + profits = around $25

ps: This based on how others telcos around the world charge and this appears to be the magic number including T-Mobile now showing it off for the first time for the pleasure of Americans everywhere. Basically I pulled it out of my ass, since I don’t have access to American carriers operational costs data, this lead me to ask around to some friends to see their phone bills and since they live all over the world I manage to see telcos that detail their operational costs (apparently it is mandated in some countries) and guess what the costs would be for an American company since those costs doesn’t appear to change much no matter what the country is, except for developing ones that have a higher for operating.

$1200 iPhone 5S plan = $90

$90 – $25 = $65
$65 * 24 months = $1560

$1560 + $499(64 GB iPhone 5S) = 2059

Price of the iPhone 5S unlocked in Singapore = $1080 (a.k.a. without “subsidy”, loan, financing)

So to me what T-Mobile did was give up on the financial product aspect because they couldn’t compete with other carriers and this is key, because they are not double dipping anymore customers can have lower prices.

What the other carriers do is exactly what a bank would do to you if you finance anything with them, they would manage the money for you and charge for it, T-Mobile just gave up on that probably because they are small compared to the others and can’t buy exclusive deals plus according to some they have been losing market share recently, so it is not out of their heart they are doing this, they are desperate, otherwise they wouldn’t be doing it, who gives up double dipping?

Note that their desperation is good for customers.

Anonymous Coward says:

Wait. In the first world you guys are still dealing with locked phones? Even here in Brazil the government decided to order the telcompanies to stop with that scam. Now, if you take your locked phone to the seller, they have to unlock the phone free of charge, and some companies dont even bother to lock them anymore.

On the other side, our market is mostly of pre paid phones, and most people have more than one basic cellphone, and cards of 2 or 3 operators. Our prices are begining to become cheap, too. One offer would have you pay just R$ 0,50 for a call to the same operator, with a duration as long as you wanted. And, due to new regulamentations, any call you make to the same phone number in less than 2 minutes actually must count as the same call, so the phone company could not just interrupt your calls.

nasch (profile) says:

Re: Re:

We have so little competition here that unlocking is of less value. Unless you have a multiband phone, there are only two or three providers I think that could service a phone. The biggest provider, Verizon, uses CDMA rather than GSM, so no swapping out SIM cards either. Basically the US cell service (and broadband) market is really primitive. And this is specific to the US, not the first world generally.

Anonymous Coward says:

Re: Even without Subsidy they still require a contract

The “subsidy” aka “loan” is a financial product and if you ask what it means, it means anything that is used to charge the client.

What T-Mobile did was get rid of the financial product aspect of the hardware financing and because it has no way of getting exclusive contracts because it lacks the money they open the doors for everyone.

Both are good for customers, bad for T-Mobile that due to pressure had to let go of the double dipping so called “subsidy” which looks a lot like what a bank would do if you tried to finance a car or anything with them, they would lend you the money and charge interest on it, this is exactly what cellphone carriers are doing right now.

With T-Mobile you can reduce your cost by half just by getting rid of the financing of the hardware under the banner of subsidy.

T-Mobile is actually doing for you what you would have to do it yourself and that is every month put away $25 bucks to pay for the phone and just pay for the operating cost of the network which is around $25 while the others are charging you double the price of the hardware and pocketing that free money which would be the interest in a normal loan.

Anonymous Coward says:

Re: Re: Even without Subsidy they still require a contract

But those plans are not what this story is talking about.
You’re referring to their pre-paid plans (“Monthly 4G”), which are indeed a lower monthly cost, offer no subsidy, *but are pre-paid plans*.

This story is about post-paid non-subsidy plans (“Value”), which still require 24 month contracts, even if you pay full price in cash for your phone at activation time. Even if you bring your own device (“SIM-Only service”).

Existing off-contract subsidy plan customers (“Classic”) are required to sign a new 24 month contract if they switch to a “Value” plan even if they keep using their existing phone, or pay full price in cash for a new phone.

Anonymous Coward says:

Re: Re: Re: Even without Subsidy they still require a contract

In Switzerland you only have a contract if you get a cheap phone. Otherwise, no contract, and it is 10 or 20 francs cheaper. But you have to remember to switch, as I recall. There are always opportunities for differential pricing depending on the bargain alertness level of the consumer.

Anonymous Coward says:

Re: Re: Re: Even without Subsidy they still require a contract

* Savings based on comparison of $69.99/mo. Unlimited Value single-line plan vs. comparable postpaid smartphone AT&T plan with 3GB data. Does not include taxes or fees. Plan features vary. Compatible device required. Data as of Aug. 2012.

** Savings based on comparison of $59.99/mo. Unlimited Value two-line family plan vs. comparable postpaid smartphone AT&T plan with 5GB shared data. Does not include taxes or fees. Plan features vary. Compatible device required. Data as of Aug. 2012.

T-Mobile does not sell the iPhone. Only AT&T?s iPhones, and Verizon?s & Sprint?s iPhone 5 will work on our network; other iPhones may have limited functionality, including coverage limitations. Capable device required for 4G speeds; capable iPhone may achieve 4G speeds in limited areas. iPhone is a registered trademark of Apple Inc.

Limited time offer; subject to change. Taxes and fees additional. Not all plans or features available on all devices. Unlimited features for direct U.S. communications between two people. General Terms: At participating locations. Domestic only. Credit approval, $35/line activation fee, and 2-year contract with up to $200/line early cancellation fee required; deposit may apply. If you switch plans you may be bound to existing or extended term (including early cancellation provisions) and/or charged an up to $200 fee. You may be unable to switch to some plans. Regulatory Programs Fee (not a tax or government-mandated charge) of $1.61 per line/month applies. Taxes approx. 6-28% of bill. For some unlimited data plans, full speeds available up to monthly allotment; then, slowed to up to 2G speeds for rest of billing cycle. Roaming and on-network data allotments differ; see rate plan for details. Family Plans: Limit five lines. All lines must be activated in same T-Mobile market with same billing address and area code. Device and screen images simulated. Coverage not available everywhere. Network Management: Data traffic of Premium & Ultra Plans will be prioritized over other currently offered plans during periods of congestion. Service may be slowed, suspended, terminated, or restricted for misuse, abnormal use, interference with our network or ability to provide quality service to other users, or significant roaming.


It is still cheaper than the others though.

T-Mobile = $60 per month * 24 months = $1440
Verizon = $100 per month * 24 monsths = $2400
AT&T = $85 per month * 24 months = $2040
Sprint = $80 per month * 24 months = $1920

Looking at those prices I feel sorry for Americans, it is still not on par with highly competitive markets elsewhere.


WysiWyg (profile) says:

Meanwhile in the old world...

Wait, you are getting this NOW? Wow, over here in Sweden we have had that since… well, since the start.

All though I think I might have misunderstood something; are you telling me that you used to keep on paying a higher monthly fee after that initial contract? Or was it just the fact that they screwed you once you added up the actual cost?

Derek Kerton (profile) says:

Customer Control

The best thing about this, if it takes off, is that VZW, Sprint, and AT&T will eventually need to respond with a similar offer.

What could happen is that, if enough people choose the lower total-cost option of buying their own phone, we could end up with a vibrant market for phones, direct to customer from phone maker. The impact of this change would be that handset makers would START making phones designed to delight the end user. They don’t currently do so. For now, they make phones to delight their actual customers…which are the carriers.

This would mean faster innovations, nothing “blocked” on the phone. Hoorah!

Anonymous Coward says:

This is horrible news for the consumer. Trust me, big companies would not make a move like this if there wasn’t extra money in it for them.

I guarantee, carriers will stop subsidies and lower monthly costs by about 10 dollars. So you are saving 240 over 2 years but shelling out 400 more for a phone. And that’s not taking into account the present value of money (where the carriers make out). Also, don’t compare plan prices between T-Mobile and Verizon. The quality of service Verizon offers is so superior to T-Mobile it’s not even funny.

Also, I never want to see a price comparison between an iPhone or gs3 and an lg marquee. The marquee might as well be a brick.

Add Your Comment

Your email address will not be published. Required fields are marked *

Have a Techdirt Account? Sign in now. Want one? Register here

Comment Options:

Make this the or (get credits or sign in to see balance) what's this?

What's this?

Techdirt community members with Techdirt Credits can spotlight a comment as either the "First Word" or "Last Word" on a particular comment thread. Credits can be purchased at the Techdirt Insider Shop »

Follow Techdirt

Techdirt Daily Newsletter

Techdirt Deals
Techdirt Insider Discord
The latest chatter on the Techdirt Insider Discord channel...