T-Mobile USA kills traditional cell contracts in subscriber boost bid

Summary:By killing traditional cell phone contracts, the fourth largest US cellular network hopes to undercut its rivals who have taken on most of its defecting customers.

NEW YORK — T-Mobile has suffered a rough ride by losing close to a half-million postpaid contract customers during its recent third quarter results. But today, the fourth largest US cellular network formally announced  that it is killing the traditional two-year cell contract in favor of a different pricing structure.

"We're changing the rules," said T-Mobile president John Legere at the press event in New York. 

tmob-iphone
T-Mobile COO Mike Sievert takes time to mock AT&T's "confusing" data plans. (Credit: CNET)

Of course it's no major surprise seeing as the company jumped the gun and changed the pricing on its website last weekend. And, T-Mobile said in December that it would cut the subsidies on its devices at some point early this year, meaning customers will have to pay the full price for T-Mobile-offered devices. 

(CNET's Maggie Reardon and Kent German have a full question and answer post live to decipher the details of the new contractless data plans.)

Legere said that while there is a need to sign a contract to get a rate plan and a smartphone, the plans don't make sense. "That's on purpose," he told reporters. "The industry is broken," Legere said. "And by the way, there are no rewards for loyalty."

Here's what you need to know:

Dubbed "Simple Choice," T-Mobile's plan will offer unlimited "everything." There are no data caps, no bill shock, and no hidden fees. Just one rate plan, which will cost $50, $60 or $70, respectively, for varying degrees of service.

You can either pay for your new smartphone at the full price up-front when you start your new plan, or you can pay off the device over time with additional monthly costs. What's different is that you can leave T-Mobile at any time. That said, if you take the latter option, you will can't just jump ship to a rival network — you will have to pay off the rest of the phone's price upon leaving.

T-Mobile will also allow you to effectively bring your own device to the network — giving an entirely different spin on the enterprise buzzterm "BYOD."

Under traditional cell contracts, you would often receive a free or heavily subsidized phone and you would pay off the contract over a one or two-year period at an overall larger cost. This means you get the short term rewards of the discounted smartphone of the day, while the carrier rakes in the long-term profits. 

Now, a $20 fee per month cost on top of your tariff will go towards paying off the phone. When the phone is paid off, the fee disappears and therefore your plan goes down in price. 

While T-Mobile has seen defecting subscribers from postpaid contracts for more than two years to AT&T and Verizon, the firm has done well in prepaid no-contract plans. These, however, do not strengthen the firm's bottom line unlike postpaid contracts. Also, T-Mobile hasn't sold the iPhone up until now

The move to cut subsidies could also backfire on T-Mobile, which has lost around four million contract customers in those two years. 

It could also be a game-changer across the entire US industry, as other carriers have indicated that if T-Mobile successfully pulls this off, they too will consider pulling their subsidies in order to generate a greater slice from the phones they sell — rather than have the profits roll back to the phone manufacturers.

Topics: 4G, Networking, Smartphones

About

Zack Whittaker writes for ZDNet, CNET, and CBS News. He is based in New York City.

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