T-mobile: Contract Killer

Leveraging off frustrations with complex wireless contracts, T-mobile CEO John Legere made a passionate plea for simplification at the company’s “Uncarrier” event, telling other wireless providers that it’s time to say “enough with the bull****.”

Doing away with contracts, the company is simplifying its product offering by presenting a simplified three-tiered approach to phone plan pricing and doing away with carrier subsidies on mobile phones. In the process, it also announced improvements to its networks (bringing 4G LTE to 6 markets immediately and starting a roll out that will see 90% of their network modernized by 2015).

T-mobile, coming from behind?

As the fourth largest wireless network, and squeezed on the lower end by pre-paid plans, T-mobile had to find a way to differentiate itself in the marketplace and it intends to do so by doing away with long term contracts. In its new iteration, the company offers both pre-paid and post-paid plans on the same terms. “The only difference between the two is whether you have good credit,” said Legere. “If you let us do a credit check on you and it’s all good, then it works like a regular post-paid plan, but if you prefer anonymity or do not meet our credit terms, then you can pre-pay,” he added.

Taking aim at its competitors, the CEO and the company’s CMO Mike Sievert made the case for how contracts in the wireless industry had become overly complicated, with terms that most consumers did not understand. As a example, Sievert pulled out several brochures from competitor AT&T, highlighting the diversity and complexity of offerings customers were faced with when trying to decide what plan to choose.

“The truth is, only wireless executives understand what’s in those contracts” said Legere, “and customers are getting [taken advantage of].” Introducing a new set of phones, including the iPhone and Galaxy S4, on the network, Legere then took aim at the cost of subsidized devices in the wireless industry.

“You think you’re paying full price for those devices? It would be a great day if all you paid was full price; you’re paying so much more,” he said. Taking the April 12 launch of the iPhone on the network as an example, he claimed that consumers would save $1000 over what they might pay with AT&T the 2 years following that purchase (T-mobile is offering the device for an upfront price of $99 and an interest free loan paid back at the rate of $20 per month over 24 months, bringing the device price to $579. By comparison, Apple is selling the device unlocked for $649 and other carriers retail it for $199 with different rate plans for services).

With its target clearly set on AT&T, the company also announced that its 4G LTE network was designed along the same approach as the wireless telecom leader to allow phones from that carrier to be ported over. “It’s no accident that we focused on the same 4G LTE bands as AT&T did,” said Legere.

But much of the complexity in the approach T-mobile is taking was not presented at the event. For example, the model they are offering (500Mb/2GB/unlimited) was designed to be different from its competitors (Sprint, Verizon, and AT&T all offer packages starting at 300Mb and then moving up to 1Mb and beyond, making it difficult to compare values).

The presentation also did not talk about what happens when a customer goes over his/her allotted bandwidth amount. In discussion after the event, I was able to find out that users would then be throttled to 2G or EDGE networks for the rest of their pay period if they went beyond what they had signed up for. And while the company allows users to tether other devices to their phone, the unlimited plan allowed for only 500Mb of tethering (while the 2Gb plan did not have such limitation). When asked about it, Siebert said that this limitation was “because of the great value we deliver on the unlimited plan,” a somewhat dubious argument. And several days after the announcement, the company’s website still talked about contracts.

However, when looking at the company’s offering, it is a refreshing departure from what other players are doing and, should it be successful, it may bring forth a new round of competitive offerings from the likes of AT&T, Verizon, and Sprint. It’s a new day in the wireless telecom industry and consumers may have to thank the Department of Justice for blocking T-mobile’s acquisition by AT&T, which has precipitated those changes.

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