Ever get tired of your phone carrier? Let’s face it: when you notice additional charges on your phone bill each month, how many times have you said, “I wish I could get rid of my phone carrier and go to someone else”? It is likely that you have stated this in your head many times, to the point that you have started to shop around for a prepaid carrier that may work in the meantime (since you still have 16 months to go before you can leave your contract). Although you regret paying the additional prepaid bill each month, your prepaid carrier and your phone afford conveniences that you do not have on your current contract.
I find myself in the same situation: a contract customer with US Cellular, a prepaid customer with T-Mobile, enjoying my prepaid, iPhone 4S experience with an unlimited everything plan (voice, text, and data, including unlimited Wi-Fi hotspot feature) for $50 (max) a month with no surcharges and hidden fees. T-Mobile’s prepaid plan for $50 surpasses my $150 US Cellular bill (which provides the same unlimited voice and text while only allowing 5GB of Internet browsing each month).
If T-Mobile’s service has been excellent so far, it is bound to improve over time. The Deutsche Telekom American carrier is eliminating its phone contracts this year that lock customers into two-year agreements. Many phone carriers are still hooked on the two-year plan, a plan they believe customers want. The contract plans themselves are a form of psychological deceit: they deceive customers into thinking that their up-front savings is more important than their monthly savings. Customers often purchase two-year plans because they can save on the price of the iPhone, for example; why pay $650 up-front when you can sign a two-year contract and walk out of the office that day having paid only $200? Unfortunately, carriers want you to think this way: if they can deceive you into placing up-front benefits over long-term benefits, then they can scam you into a long-term contract that is more financially profitable for them than for you. When carriers “swoon” you into a two-year contract, they charge you for not only the remainder of the phone price over a two-year agreement, but also make a monthly amount for the carrier itself. This is the reason why my US Cellular bill will cost three times the amount of my T-Mobile bill this year ($1800 vs. $600, respectively).
The new off-contract plans will allow you to pay the full price for your phone up-front. If the full cost of your smartphone is $650, then you will pay the entire price at the time you commit to an agreement with T-Mobile. Once you do, you will then get an affordable monthly bill ($30, $50, or $70 a month), which will allow you to get unlimited voice, text, and data plans. I am currently under a $50 prepaid plan with T-Mobile, which provides unlimited everything for me. Under my current agreement, however, 4G wireless speeds are throttled after about 100MB of data have been consumed each month. Since my iPhone 4S does not have 4GLTE, it does not bother me as much as some customers who want the fastest wireless speeds available.
It has been said that the plan will work, only if customers see the long-term benefits over the short-term. If a customer understands that he or she will save $1200 a year on a prepaid agreement that requires the full price (as in my case), then he or she may be willing to do so. For some individuals, however, affording the full price up-front may be a problem. T-Mobile makes it easy because they do not require the full-price at signing; rather, you would pay down a small fee (say, $99, according to T-Mobile CEO John Legere), then pay a little on the price of the smartphone each month until you pay off the entire cost. If you choose to exit your agreement early (say you want Apple’s next iPhone but have only had your plan for six months), then the cash value you’ve placed into your current phone will be applied towards your new phone. This prevents customers from being locked into a two-year agreement if they want the latest phone. This also means, however, that after six months, you must spend another $650 for the latest phone.
Verizon Wireless, one of the top three carriers, likes the promise of T-Mobile’s plan, as well as AT&T’s CEO, Ralph de la Vega. Verizon’s CEO Lowell McAdam called T-Mobile’s plan “a great thing” and said that the carrier Verizon “could move to that very quickly” if it proves to be popular with customers. Although AT&T’s Ralph de la Vega considers it a good idea, he does not think it will be as popular with his carrier. According to de la Vega, former customer surveys have indicated rather strongly that customers are not interested in up-front payments, stating that “Our research says that they [customers] don’t like paying upfront for the phone. There didn’t seem to be the appetite for that kind of plan” (Could Verizon, AT&T Follow T-Mobile in Ending Subsidies?). Unfortunately, this explains why AT&T customers pay more per month for their phone service than any other customer on any other carrier.
T-Mobile is on to something with ending subsidies; nevertheless, the issue comes down to one of customer education. Customers have to educate themselves about their finances and ways to save on their phone bills each month. When it comes to carriers, T-Mobile will have to lead the way in educating customers about contract plans, telling them the pros and the cons while helping them learn how to educate themselves. Most carriers refuse to educate their customers, which explains why contract agreements have become so popular. At the same time, customers need to know that the current plans they have require them to pay more than the alternative. If T-Mobile can accomplish this, ending subsidies will be one of the great market achievements of 2013.