Would you speak up if you were overbilled for a meal? Would you complain if you paid for a book from Amazon.com that never arrived?
Or what if you had to keep making monthly mortgage payments even after your loan was fully repaid?
Well, guess what? If you’re like most people, you’re participating in exactly that kind of rip-off right now. It’s the Great Cellphone Subsidy Con.
When you buy a cellphone — an iPhone or Android phone, let’s say — you pay $200. Now, the real price for that sophisticated piece of electronics is around $600-$800. But Verizon, AT&T and Sprint are very thoughtful. They subsidize the phone. Your $200 is a down payment. You pay off the remaining $400-$600 over the course of your two-year contract.
It’s just like buying a house or a car: you put some cash down and pay the rest in installments. Right?
Wrong. Here’s the difference: Once you’ve finished paying off your handset, your monthly bill doesn’t go down. You keep reimbursing the cellphone company as though you still owed it. Forever.
And speaking of the two-year contract, why aren’t you outraged about that? What other service in modern life locks you in for two years? Home phone service? Cable TV service? Internet? Magazine subscriptions? Baby sitter? Lawn maintenance? In any other industry, you can switch to a rival if you ever become unhappy. Companies have to work for your loyalty.
But not in the cellphone industry. If you try to leave your cellphone carrier before two years are up, you’re slapped with a penalty of hundreds of dollars.
If you’re not outraged by those rip-offs, maybe it’s because you think you’re helpless. All of the Big Four carriers follow the same rules, so, you know — what are you gonna do?
Last week, the landscape changed. T-Mobile violated the unwritten conspiracy code of cellphone carriers. It admitted that the emperors have no clothes. John J. Legere, T-Mobile’s chief executive, took to the stage not only to expose the usurious schemes, but to announce that it wouldn’t be playing those games anymore.
It was a Steve Jobs moment: when somebody got so fed up with the shoddy way some business is being run (say, phone design or selling music) that he reinvented it, disruptively.
At the new T-Mobile, the Great Cellphone Subsidy Con is over. You can buy your phone outright, if you like — an iPhone 5 is $680, a Samsung Galaxy S III is $650. Or you can treat it like a car or a house: pay $100 for the phone now, and pay off the rest over time, $20 a month.
That may sound like the existing phone subsidy con, but it’s different in a few big ways. You pay only what the phone really costs. You don’t pay interest, and you stop paying when you’ve paid for the phone; in other words, your monthly bill will drop by $20 a month, just as it should. (You can also pay it off sooner, if you like. If you have a good month and want to put, say, $70 toward your phone payoff, that’s fine.)
T-Mobile doesn’t care what phone you use, either; if it works on T-Mobile’s network, you can use it. And why not? Why shouldn’t you buy one phone you really love, and use it freely as you hop from carrier to carrier? Would you buy a car that uses only one brand of gas?
Yet another radical change: There are no more yearly contracts at T-Mobile. You can leave at any time. “If we suck this month, drop us,” said Mr. Legere. “Go somewhere else.”
In the new T-Mobile world, there are only three plans.
All come with unlimited phone calls, unlimited texts, free tethering (which allows your laptop to get online via your phone) and unlimited Internet. The only difference among the plans is how much high-speed wireless Internet you get each month: 500 megabytes ($50 a month), 2 gigabytes ($60) or unlimited ($70).
After you’ve burned through that much data, your Internet speed drops to 2G speeds for the rest of the month — suitable for e-mail or pulling up a Web page, but much too slow for video. You can upgrade your plan for a given month, if you like, but the point is, you’ll never be penalized. In other words, T-Mobile’s new program has also eliminated the overage charge.
Over time, these plans can save you a huge amount of money compared with T-Mobile’s larger rivals. For a plan that matches T-Mobile’s $60 plan, Verizon would charge you $100 a month. Over two years, you’d pay $960 more.
For a plan that matches T-Mobile’s $70 plan, Sprint would charge you $110 a month. Over two years, once again, you’d pay $960 more.
AT&T doesn’t have any plans that match T-Mobile’s exactly, but you get the idea. AT&T’s $85 plan gives you 1 gigabyte of data a month — half what you get with T-Mobile’s $60 plan.
Furthermore, Verizon and AT&T don’t offer the “unlimited slower Internet” option after you’ve eaten up your monthly data allotment. Instead, they just slap you with a steep per-gigabyte overage fee ($15 a gigabyte).
Weirdly, T-Mobile’s press announcement left out what may be the biggest, best news of all: T-Mobile is the first major carrier to eliminate the ridiculous, unnecessary, airtime-eating, 15 seconds of prerecorded instructions that you hear when you want to leave a message. (“To page this person, press 5 … When you have finished recording, you may hang up.”) When you call a T-Mobile customer, you go right to the beep. Someone should organize a parade.
This all sounds wonderful. But sooner or later, we have to acknowledge the elephant in the room: T-Mobile can afford to be the disrupter because it’s in last place. It has the fewest customers and the smallest network coverage of any of the Big Four in the United States. It can take risks because it has nothing to lose.
Part of T-Mobile’s problem is that it’s famous for not offering the iPhone and not offering the fastest kind of Internet network, known as 4G LTE.
Fortunately, the company is tackling both of those drawbacks. On April 12, it will offer the iPhone 5 — with a feature nobody else has, in fact, called HD Voice. It offers supersharp voice quality when you’re calling another phone that has HD Voice.
The company has also managed to buy, merge and lobby its way into ownership of more spectrum — expensive, very limited cellular frequencies — that will allow it to install LTE networks at last. The company says that it will have 100 million Americans covered by LTE signal by summer, and 200 million covered by year’s end.
As long as T-Mobile had a sad little network running no-name phones, it wouldn’t matter what its policies were.
But once T-Mobile’s network and phones become contenders, its much more fair, transparent, logical policies will suddenly matter. Those practices will have teeth. The other carriers will have to start paying attention.
And they should. The Great Cellphone Subsidy Con is indefensible no matter how you slice it — why should you keep paying the carrier for the price of a phone you’ve fully repaid? — and the two-year contract is an anticompetitive, anti-innovation greed machine. Those practices should stomp right across your outrage threshold.
If T-Mobile’s crazy, way-out plan succeeds, those practices may just go away. And that’s why, even if you have no intention of becoming a T-Mobile customer — maybe there’s no coverage where you live, or maybe you’re already locked into a two-year contract — you should pay attention. One of the four emperors has now put on real clothes. The question is, will the others follow suit?
David Pogue – firstname.lastname@example.org