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How T-Mobile's pricing is pushing AT&T and Verizon in a race to the bottom

Glenn Fleishman | Aug. 17, 2015
Remember back in 2011 when AT&T said it needed to acquire T-Mobile in order to remain competitive against Verizon? That it couldn't get enough spectrum for 4G LTE without the merger? Oh, I never laughed so hard--and neither did the U.S. government.

Even better (for consumers), T-Mobile pushed its bigger competitors into new models for selling phones: It eliminated subsidized phones, and instead sells phones on installment plans. In response to T-Mobile pressure, AT&T's Next plan introduced the installment plan model in 2013, and earlier this week, Verizon switched all its offerings to installments. 

Installment plans have three benefits: First, there are no upfront costs; it's all built into monthly payments. Second, you don't pay a never-ending monthly subsidy fee after you've paid back the cost of the phone--that's good news for people who keep phones for years or hand them down. Third, after 18 months on a 24-month installment plan (the typical duration), all three carriers will let you trade in for an upgrade--without a fee. (T-Mobile requires you trade in or pay the final six months as a lump sum; the other carriers let you pay out the plan monthly.)

T-Mobile has also pushed aggressively for unlimited everything beyond domestic voice and texts: unlimited data, unlimited calls from the U.S. to Canada and Mexico, and unlimited 2G data and text while outside the U.S. (in about 120 countries). T-Mobile makes this financially viable by throttling back data and via partnerships with international carriers, all of which have their own users roaming onto American networks. Other carriers have collected (or still collect) data overage fees, per-MB fees, and other per-unit fees.

While T-Mobile throttles its 1GB to 5GB plans to 2G speeds after a user reaches his or her monthly allotment, its unlimited 4G LTE offering is truly unlimited on-device. (Tethering stops after 7GB so that customers won't use their phones as broadband replacements.) And 4G LTE plans can be used in Mexico and Canada at those speeds as well.

Finally, last year T-Mobile started letting unused data roll over for up to a year for its threshold plans. AT&T blinked first at this consumer-friendly move, and added data rollover in January--though the rollover period is just one measly month.

It's all about increasing the customer base

With all these changes, we haven't seen giant drops in monthly plan pricing. Rather, most people are getting more data and services at the same price they did before (although, to be fair, with most carriers that's helped customers avoid overage and international fees). My wife and I pay AT&T roughly the same for two lines as we did a few years ago, but we haven't paid an excess fee since they changed the sweet spot for the amount we pay to 10GB--and that jumps to 15GB today.

AT&T and Verizon have benefited from slumbering users. Most consumers are aware that the carriers are offering sweeter packages of features, but few people are motivated to wake up and do pricing comparisons. Plans are going to start dropping further in price, however, because that's the next frontier. I expect in a year to be paying 20 percent less, and probably have more data and international roaming and calling, too.

 

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