Is The Two-Year Mobile Contract Dead?
The big three mobile phone carriers (Verizon, AT&T, Sprint) have used the same pricing scheme for a long time: sell phones at steep discounts and make it up on service contracts that lock customers into monthly payments for at least two years. T-Mobile, the fourth largest carrier, seems to be challenging that paradigm in a way that gives consumers more flexibility. But does it really? Read on to learn more about T-Mobile's new 'no contract' mobile service plans...
Did T-Mobile Really Kill the 2-year Mobile Phone Contract?
T-Mobile is touting no-contract plans called "Simple Choice" that allow smartphone customers to pay monthly and drop their plans at any time. You get unlimited voice, text, and data service for one monthly base fee, and can choose a 4G data "bucket" option that suits your needs.
The Simple Choice plan comes with unlimited talk, text, and web, and costs $50 for the first line. Adding a second line costs $30, and additional lines cost $10 each. And there is no two-year contract or early termination fee if you switch carriers. So far, so good.
The catch is that data bits are unlimited but speed is not. Unless you pay extra, only your first 500 megabytes of data will be at 4G speeds. You can pay an extra $10/month and bump your 4G allowance up to 2 gigabytes/month. If you exceed your 4G allowance, you won't pay overage fees, but the rest of your data usage for the month will be at 2G speeds. That means S-L-O-W. If you use more than 2 gigs of data, and don't want to be throttled, you can get unlimited 4G on any of your mobile devices for $20/month. The unlimited 4G option also gives you 500 megabytes of Mobile HotSpot data.
Here's a pricing example for a family of four. Your starting price will be $100 (50 + 30 + 10 + 10). If any family member wants more than 500 megabytes of high-speed data per month, add either $10 or $20 per line, depending on how much data you burn. For my family, we'd get by on $130/month, which is about $50 less than I'm paying for Verizon service. And the mobile hotspot, for which Verizon charges $30/month, would be free. Too bad I can't get a T-Mobile signal at my home.
What Exactly Does "No Contract" Mean?
Yes, with T-Mobile's new Simple Choice plans, you can switch carriers without paying an early-termination fee. But you’ll pay full list price for a smartphone, which can be several hundred dollars up-front. T-Mobile is lowering this barrier by offering a phone financing option. You make a small down payment for the phone, then pay the balance off in monthly payments for –- wait for it -– two years. After the phone is paid off, you own it.
Well until it’s paid off, guess what? You have a contract to pay for the phone! If you bail out before 24 months, the remaining balance is due. Essentially, T-Mobile is just switching the contract obligation and early-termination barrier from its service to the phones it sells.
And until the phone is paid off, it remains locked in to T-Mobile service; it’s useless with any other carrier. Just download some free software that unlocks the phone, you say? That was legal for a while. But in January, the U.S. Copyright Office eliminated your right to unlock a phone without your carrier’s permission. If you do, T-Mobile has you for circumventing its software security as well as the remaining balance due on the phone. You’re not just a deadbeat debtor; you’re a criminal.
I don't mean to say that T-Mobile's new Simple Choice deal is all bad. The advantage of this "contractless" deal is that after the phone is paid off, your monthly bill decreases. Other carriers keep collecting the hardware fee built into their monthly service charges for as long as you’re a customer. So the new T-Mobile "contractless" scheme is good for long-term customers.
Depending on how many mobile phones your family uses, and how large your data appetites, T-Mobile's Simple Choice plan could save you money over Verizon or AT&T. And because T-Mobile allows customers to bring their own GSM-compatible device, it could be a win for some.
On the downside, T-Mobile’s "contractless" plans have no "family friendly" shared data buckets. Each line added to your account gets unlimited voice, text, and data service, and lines can have different 4G data bucket sizes. But your spouse or Junior can’t use any of your surplus 4G allowance. Or vice versa.
And in case you don’t have enough decisions to make, T-Mobile continues to offer traditional two-year service contracts. For some, navigating complex smartphone pricing schemes is "freedom of choice." For others, it’s a stressful and confusing maze of choices and uncertainty.
Will you go for one of T-Mobile's new "no-contract" plans? Post your comment or question below...
This article was posted by Bob Rankin on 4 Apr 2013
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