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T-Mobile Gets Rid of Contracts For Cellphones

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(FOX 11/AP) Across the pond, in Europe and other parts of the world, customers paying full price for their cellphones up front is a fairly common practice. The upside to that practice is that you generally come out cheaper in the long run while the downside is that the initial cost of starting service can be steep. Personally, I think it's time for a serious look at these kinds of plans and a change in consumer mentality when it comes to cellular service.

Here's the deal: when you're locked in for two years, the company doesn't have to be as aggressive with innovating plan features and services. They have you and you're not going anywhere- and by "you," I mean "us." We' re all locked in. Now let me ask you this... what if I told you that you could live in a world where carriers were forced to worry more about keeping your business because you could literally take your account(s) anywhere, at any time, without rhyme or reason? You are in the driver's seat and you give your business to the carrier who has the best mix of coverage, calling/data features and affordability and can move to that carrier as soon as the one you're with decides they don't feel the need to work too hard to give you that any longer! This is the way it should be. We give them our money, we should be getting our money's worth! This isn't to say that we shouldn't pay a fair price so they can, themselves, make some money but competition is good for everyone- well maybe not as advantageous for the carriers.

What's a great plan without an awesome phone to match? Don't worry, you won't be completely breaking the bank! Enter: Google whose Nexus 4 is at a price point which actually makes sense. Starting at $300, the Nexus 4 is unique in that its price point is low enough that it actually matches some carriers' subsidized handset pricing and with features that are, for the most part, as good as the top handsets on the market. This phone has been successful and with that success on the market- it has sold out fast whenever it's been in stock- other vendors may begin to step up and offer top notch devices at more wallet friendly unsubsidized prices.

This doesn't work just one way though. Data intensive device use has skyrocketed in the US in the last few years and companies want to take advantage of that. They need to be smart about how they do it and attracting customers with the promise frequent phone upgrades just hasn't been working. In addition, there are still many out there who feel like they get nickel and dimed for every little thing along with a general sense of confusion about what exactly they're paying for and it's no wonder that T-Mobile USA, the struggling No. 4 cellphone company, is ditching plans centered on familiar two-year contracts in favor of selling phones on installment plans.

The company changed its website over the weekend to sell the new plans. It was set to lay out the rationale for the change on Tuesday at an event in New York.

T-Mobile has been losing subscribers from its contract-based plans for more than two years, chiefly to bigger competitors Verizon Wireless and AT&T. T-Mobile has done better with contract-less, prepaid plans, but those aren't as profitable for the company.

The new plan blurs the boundaries between the two types. Prepaid plans have lower monthly fees, but the buyer usually has to pay full or nearly full price for the phones. This will hopefully increase the company's profit margins since they won't be eating the cost of those handsets up front. With T-Mobile's new plans, the initial phone-buying experience won't be much different from what it's like for contract plans, but customers could save money in the long run.

For instance, someone who wants a Samsung Galaxy S III would pay $70 up front and then $90 per month for unlimited calling, text and data. That monthly fee includes $20 to pay off the cost of the phone over two years.

By separating the cost of the phone from the service, T-Mobile is making its plans and upgrade options easier to understand. When the phone is paid off, the $20 fee in that example disappears. On traditional contract-based plans, the buyer is deemed to have "paid off" the phone after a certain period of time and become eligible for a new, subsidized phone, but the monthly payments don't decline.

As before, T-Mobile's prices generally undercut those of the bigger phone companies. The chief downside is that its data network coverage is poorer in rural areas.

T-Mobile stopped short of adopting shared-data plans that Verizon Wireless and AT&T introduced last year. Those plans allow all of a family's devices to share a pool of monthly data usage. Instead, T-Mobile is selling data per line in three tiers. The talk and text portion of the plan comes with 500 megabytes of data usage per month. Adding $10 bumps that to 2 gigabytes per month, while adding $20 provides unlimited data.

A big part of the reason for the exodus of contract-signing customers from T-Mobile is that it, alone among the four national-level cellphone carriers, doesn't offer the iPhone. That's because its network has, until recently, not been able to offer high-speed data service to iPhones. It's now able to offer high-speed data to iPhones in some cities, and had been trying to persuade iPhone owners who have come off their contracts with AT&T to move the phones over to T-Mobile.

The Associated Press contributed to this report.

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