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T-Mobile's moves catch Verizon and AT&T's eyes, but is contract-free really free?

Daniel Ionescu | April 8, 2013
T-Mobile isn't the only carrier contemplating a subsidy-free future. Verizon will keep a close eye on consumer response to T-Mobile's initiative to drop contracts and phone subsidies, and if it picks up, the country's largest carrier might even adopt the model--but that doesn't mean it will necessarily be easier to switch carriers or get a cheaper deal.

T-Mobile isn't the only carrier contemplating a subsidy-free future. Verizon will keep a close eye on consumer response to T-Mobile's initiative to drop contracts and phone subsidies, and if it picks up, the country's largest carrier might even adopt the model--but that doesn't mean it will necessarily be easier to switch carriers or get a cheaper deal.

Speaking at an event in New York on Thursday, Verizon CEO Lowell McAdam said "We can react quickly to consumers' shifting needs," and that he's "happy when I see something different tried," CNet reported.

AT&T hasn't ruled out the idea either. Earlier this year, CFO John Stephens said "[ditching phone subsidies is] something we've looked at on several occasions. I kind of like the idea. It will be something we're going to watching, how it is received in the market place," according to a Seeking Alpha earnings call transcript.

T-Mobile is the fourth largest U.S. carrier after Verizon, AT&T and Sprint. Last month, the company announced it would place less focus on typical two-year phone contracts in favor of no-contract plans and an option to pay a down payment on a new phone, then pay the rest of the balance off in small monthly installments over a two year period.

Carriers such as Verizon have been offering low-cost, no-contract cellular plans in addition to traditional two-year plans with subsidized phones for a while now, but those cheaper no-contract plans have typically required you to BYOD or pay the full cost of a new phone up front.

Jared Newman crunched the numbers for TechHive and found that you'll pay $2030 over two years ($60 per month for 2GB of data and unlimited talk and text, plus $110 for the phone up-front, plus $20 per month for two years to pay off the hardware) for a Galaxy S III under T-Mobile's new scheme, while comparable plans from AT&T and Verizon would cost $2240 and $2600, respectively.

Cellular caveats

While Verizon and AT&T's willingness to follow in T-Mobile's subsidy-free footsteps sounds wonderful at first blush--and it is, in terms of lower costs and increased plan flexibility--there are some chilling caveats that lessen the luster a bit.

First, is it really fair to call these schemes no-contract? Paying $110 for a phone up-front and splitting the rest of the hardware costs over two years is still a form of commitment, even if it's not for your plan, but rather for your handset. As we pointed out in the wake of T-Mobile's announcement, if you decide to leave the carrier soon after signing up, the remaining hardware cost could far exceed the usual $300 early termination fee traditional plans impose.

 

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