Cellphone costs: T-Mobile’s challenge to the status quo

“The Great Cellphone Subsidy Con is over,” said David Pogue in The New York Times, and we have T-Mobile to thank. “Under the unwritten conspiracy code of cellphone carriers,” you pay about $200 up front for a phone, and carriers Verizon, AT&T, and Sprint charge you the remaining $400 of that phone’s real cost over the course of a two-year contract. But “once you’ve finished paying off your handset, your monthly bill doesn’t go down.” You keep paying that subsidy “forever.” No more. Last week, T-Mobile eliminated its two-year contracts for new customers and new phones, including the iPhone 5. You can buy a new device“what the phone really costs,” either in one payment or over time at no interest. Once your phone is paid off, your bill will drop by $20 a month, saving you “a huge amount of money.” As the smallest of the U.S. providers, T-Mobile “can take risks because it has nothing to lose.” But now “the other carriers will have to start paying attention.”

“T-Mobile is trying to change the game here,” said Matthew Miller in ZDNet.com. Americans generally go for cheaper phones with a contract because they don’t want to pay full price up front. But those of us who bring our own phones to a network are “a bit ticked off” that we still have to pay like everybody else. “The carrier is not giving you a break because you bought your own phone, and is just pocketing this subsidy fee without providing anything additional to you.” T-Mobile is saying goodbye to all that, and “I’m fully onboard with their strategy.”

T-Mobile’s new offer “doesn’t quite add up to a bargain,” said Rebecca Greenfield in TheAtlantic.com. Unsubsidized phones may “attract the thriftiest shoppers,” but consumers should realize that T-Mobile lags far behind other carriers in terms of network coverage: It offers the fastest 4G LTE coverage in only seven cities, compared with 485 markets for Verizon. “Since the principal attraction of the iPhone 5 is its superfast mobile data, why invest in one on a network that doesn’t provide that coverage?”

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No doubt, T-Mobile “has a lot on the line,” said Thomas Gryta and Anton Troianovski in The Wall Street Journal. It gets out from under the onerous costs of paying out big sums to phone manufacturers like Apple, a “transfer of wealth” that has long rankled carriers. But its approach could backfire if customers balk “when presented with the full cost of their favorite devices.” On its own, T-Mobile can’t “disrupt a model that has driven smartphone adoption” in the U.S. But the bigger carriers are “watching to see if T-Mobile gets traction.” Stay tuned.