What’s Different About the New T-Mobile “Un-Contract” Plans?

T-Mobile iPhone 5

Yesterday, T-Mobile announced a new type of cell phone plan idea, which is available immediately. They call their new arrangement “un-contract” and it’s a pretty significant departure from the norm, at least here in the U.S.

With the new plans, a T-Mobile customer pays only for the plan. The cost of the phone is a separate line item on a monthly bill, or paid for up-front. This is HUGE news for people who want an iPhone 5 without being tied to a particular cellular provider.

CNET has done a great job answering the big questions on their full FAQ site, but here’s the important stuff:

Smartphones are expensive. Some of the newer models cost between $600 and $700 at full retail price. Traditionally, wireless subscribers in the U.S. have asked customers to pay a fraction of that cost. Typically, the price is about $200. The carrier pays the rest of the cost of the phone. In exchange for this “deal,” consumers agree to a two-year service contract. And if they leave the service early, they must pay an early termination fee.

T-Mobile is getting rid of the contract and the subsidy. This means that customers will have to pay full price for their phones.

What if I can’t afford the cost of a new phone?
T-Mobile is offering a financing plan. For example, T-Mobile is offering the 16GB version of the Samsung Galaxy S3 for $549.99 if you pay at once. But if you can’t afford that, you can put $69.99 down and pay an additional $20 per month on top of your service plan every month for 24 months. At the end of the 24 months, you own the phone outright.

 

This kind of sounds a lot like a contract/subsidy plan. What’s the difference?
The big difference is that after you pay off the phone, your overall monthly bill goes down. It’s just like when you finish paying off a car, or the mortgage on your home. Once the loan is paid off, you own the device outright and you can continue to use it. And because it’s paid off, your monthly bill will go down by up to $20 a month.

This is different than the contract/subsidy model, because under that model, the carrier doesn’t break out the additional cost of the device in your monthly bill. The price of that subsidy is bundled into the cost of the service you subscribe to each month. At the end of a two-year contract, the phone is likely paid for in full. And you are no longer bound to an early termination fee. But your monthly service is not reduced to reflect that the cost of the phone has been paid. Instead, you could continue to keep your old phone and still pay the same monthly service fee you were paying before it was paid for.

So, the big deal is that you can buy an iPhone up-front, and you own it. T-Mobile can’t stop you from using a local SIM card in that iPhone when you travel internationally, or using that iPhone with another domestic carrier.

I love the idea of no contract, and I REALLY love the idea of lower monthly payments. What do you think about paying full-price for your device up front in order to have lower monthly bills?

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