T-Mobile looks to put an end to service contracts, but consumers may need convincing
By Chantal Tode
March 27, 2013
T-Mobile is trying to shake up the carrier-customer relationship by offering voice and data plans without the need for a two-year contract as well as a new way to purchase smartphones that promise to save consumers money with a minimal upfront cost and monthly payments.
At yesterday’s event announcing the news, T-Mobile president and CEO John Legere stressed that most carriers offer confusing contracts and monthly bills, a practice the company wants to put an end to with its Simple Choice Plan.
“It is hard to imagine that new variant of the iPhone with a feature like HD voice and a new plan is going to cause significant churn from AT&T and Verizon,” said Noah Elkin, principal analyst at eMarketer, New York . “This is the first step in a much longer marketing battle between the tier-one carriers here in the United States.
“There still needs to be a rebalancing in terms of what carriers charge for and what consumers are using,” he said. “Consumers pay more for voice than data even though they are using more data and the data is more expensive form the carrier perspective.
“It is difficult to get if you wanted a data only plan form your carrier. Voice is still something of a cash cow for carriers so they need to be very careful in terms of how they make that shift so they are not eliminating a potentially still lucrative revenue source for themselves.
With the Simple Choice Plan, customers are not required to sign annual service contracts. Customers start with one line at $50 per month for unlimited talk, text and Web with 500MB of high-speed data. A second line can be added for $30 per month with each additional line after that $10.
Customers can also add 2 GB of high-speed data for $10 per month per line.
Unlimited 4G data is available for $20 more per month per line.
T-Mobile also unveiled a way for customers to get the latest smartphones such as the iPhone, Samsung Galaxy S4 and the BlackBerry Z10 without the need to sign a two-year service contract. Instead, customers pay an upfront fee and then make low monthly payments on the device. The carrier promises this will save customers money compared with what they would pay over the life of a two-year contract.
T-Mobile faces several challenges with the move away from service contracts.
“While consumers are perhaps interested in the idea of an alternative to the two year contract and subsidized pricing, the opportunity and challenge is convincing consumers to change their ways,” Mr. Elkin said.
“Consumers are accustomed over years of working under the existing the business model to getting a new phone every 18 to 24 months and reupping for another contract,” he said. “This is an alternative that is not a contract and data only options that are starting to be more in line with how consumers are really using their devices.
“The challenges is getting consumers to get look past the lack of subsidy and think about the potential value there is in paying more for a phone but perhaps paying less in terms of the lifetime value of the agreement with the carrier.”
The benefit to consumers of T-Mobile’s Simple Choice plan is that they conceivably save money and are not tied to one device for two years.
The iPhone factor
T-Mobile also said it will begin offering the iPhone for the first time on April 12.
Qualifying customers will be able to purchase an iPhone 5 for $99 down plus $20 per month for 24 months without an annual service contract. This means customers will be able to decide when they want to upgrade their device and do not have to wait until their contract has run out.
The iPhone 4S will be available for $69.99 down and $20 per month and the iPhone 4 for $14.99 down plus $15 per month.
This is the first time T-Mobile will be offering the iPhone, which has the potential to expand the iPhone user base and has implications for iAd.
In the past, bringing on the iPhone was a significant advantage for carriers as it has the potential to bring in new customers. However, now that all of the major carriers are offering the iPhone, this development has lost some of its impact.
“This is not the game changer that it was a couple of years ago,” Mr. Elkin said. “As all the other carriers offer it, it becomes a must have at this point.”
The carrier also announced that it will have several 4G LTE-capable devices available, including Samsung Galaxy S 4, BlackBerry Z10, HTC One, T-Mobile Sonic 2.0 Mobile HotSpot LTE and Samsung Galaxy Note II. It has also introduced its 4G LTE network in seven major metropolitan areas: Baltimore, Houston, Kansas City, Las Vega, Phoenix, San Jose, CA, and Washington.
While T-Mobile is not unique in offering LTE, the expansion of LTE in the U.S. supports already existing mobile usage trends of more data-heavy sessions and continues to lay the groundwork for richer mobile advertising experiences.
“T-Mobile is one of the littler guys going against the top two , AT&T and Verizon,” Mr. Elkin said.
“If T-Mobile starts to get some traction as a result of this and other carriers start to see churn as a result of this, then maybe you will see the other carriers doing something along the same lines,” he said.
“I don’t see it like the airlines, where one carrier raises prices and therefore everyone else follows suit.”
Chantal Tode is associate editor on Mobile Marketer, New York
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