T-Mobile no contracts: Are new contract-free cell phone plans better deal for you? (Yuhnke Blog)

PHOENIX - Can T-Mobile change the way we think about buying a cell phone?  The company rolled out new cell phone plans this week with a promise to stop forcing customers into two-year contracts. What does this mean for you? Is it a better deal for consumers?

HOW "TRADITIONAL" CELL PHONE COMPANIES WORK

Typically cell phone companies require you to agree to a two-year contract to get the subsidized price on a cell phone. You promise to stay for two years and in turn the company can drastically reduce the price of the cell phone because that discount is essentially built into the price of the monthly service charge. Once your contract is about to end, they typically work to lure you back in for another two year contract by waving a bright shiny new cell phone in front of you... it usually works.

On the surface, the concept seems fair. You lock into their service for two years in exchange for a deep discount on a fancy smartphone. Problem is, it can make it very difficult to switch carriers if you're not happy. If you do decide to switch, get ready for an early termination fee.  

T-MOBILE'S NEW IDEA

T-Mobile has decided as the fourth ranked carrier in the US, it is going to do things differently. No contracts, no subsidization. Instead, every customer is on a month to month agreement. Want to switch to another carrier? Go ahead. There are no early termination fees because you're never actually locked into a contract. What about a phone? Instead of subsidizing the price of the phone T-Mobile is willing to take a down payment and then finance the phone for you over the course of two years (or less if you want to pay it off faster) with 0 percent interest. 

If you leave early, T-Mobile says it will even buy the phone back from you at "fair market value". You would be responsible for the difference between how much you still owe on the phone and the fair market value.

The dollars and cents of it can (and will) be debated. What can't be debated is that it's more fair for consumers.  No contract, no hidden phone prices = more transparency and flexibility.

Now to the biggest question, is this a better deal? Let's compare buying the Samsung Galaxy S III on AT&T and T-Mobile with unlimited minutes, texts and 4G data. The total price over two years, including the upfront price for the handset and two years of service is:

  • AT&T: $3,559.75
    ($199.99 upfront for handset, $139.99/month)
  • T-Mobile: $2,229.99
    ($69.99 upfront for handset, $90/month)

On top of this, the monthly T-Mobile price goes down by $20 after two years because the handset is then paid off.  The AT&T monthly price stays the same. You would save over $1,000 in two years on T-Mobile for the same handset and essentially the same set of services. Pretty impressive!  

Now, if you are the type of user who doesn't need unlimited minutes, texts and data, things get foggy. T-Mobile has a very small selection of plans and they all include unlimited minutes and texts. Not everyone needs this.  

WHY THERE'S MORE TO IT THAN PRICE

If you're the unlimited type, it seems like a simple choice, right? Not so fast. This is wireless service so not all networks are created equal. T-Mobile's HSDPA+ internet speeds are competitive to AT&T's LTE 4G in some areas but typically come in slower. T-Mobile is in the process of rolling out LTE (Phoenix is one of the first markets launched) but it's still in the infancy stage compared to AT&T. On top of that, you have to consider how robust each network is in your area. AT&T is a bigger company, with more customers and more resources. Chances are, they will have better coverage in many areas where T-Mobile doesn't. 

My advice is always the same for cell phone service. Price is important and will make you smile when you pay the bill but bad service will drive you absolutely nuts. Find a friend with the different services you're considering and have them try their phone out at your home and work. You want to make sure that the service is "spot on" in the places where you will spend most of your time. 

CONCLUSION

T-Mobile is moving things in the right direction. I believe that and hope others follow suit. Zero contract cell phone plans put the power back in the consumer's hands. Paying off the cost of an expensive smartphone in payments is a great alternative to having the subsidized price secretly built into the monthly service charge. Nonetheless, never confuse a better deal with better service. Test them all out for yourself before you make a decision, especially if you're being forced into a two-year commitment with one those "other" cell phone services.

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