By Alexandra Burlacu | Dec 09, 2012 11:23 AM EST
T-Mobile announced it would eliminate phone subsidies next year, shifting completely to its "Value" plans in a bid to spur its turnaround.
With this move, T-Mobile will be the first nationwide carrier to shed the lucrative, long-standing practice of offering subsidies to customers who sign long-term contracts.
Under the new business model, consumers can either pay full price for the smartphone upfront, pay in monthly installments until the handset is paid in full, or come with their own unlocked handset. The practice is more transparent, and the carrier cannot justify higher rates throughout the duration of the contract.
T-Mobile, the U.S. unit of Deutsche Telekom, has already seen a significant shift towards the no-contract business, as many of its postpaid customers have ditched the service for more other carriers offering the iPhone, or less expensive regional or bargain prepaid service providers.
T-Mobile's move to nix phone subsidies and push for more transparency, however, is no big surprise. The prepaid segment offers more opportunity for growth, and much of the wireless industry is already investing in this great potential. T-Mobile lost nearly half a million contract subscribers in the third quarter, but that loss was offset as the carrier gained 365,000 prepaid customers.
T-Mobile CEO John Legere promised that T-Mobile will couple its plans with a potential lineup of affordable flagship phones, which could help change the way consumers think about the price/ benefits ratio. To this endeavor, T-Mobile is finally getting the iPhone next year, and will also likely add other big-name devices such as Samsung's popular Galaxy S lineup. Switching to Value Plans rather than subsidies will allow the carrier to offer top-of-the-line smartphones at affordable prices, said Legere.
"You may pay $99 for the most iconic device in the world, and then you may get 20 months worth, call it, $15, $20 a month," he said, speaking at an investor conference in Germany for Deutsche Telekom.
Furthermore, T-Mobile also said it will go after AT&T customers who are ready to jump ships, particularly those who want to purchase the iPhone. The carrier said it plans to go after AT&T customers with an aggressive marketing campaign, complete with the "You love your iPhone, you hate AT&T" slogan.
"We're going to very aggressively target AT&T," said Legere, while noting that current T-Mobile customers who switched from AT&T believe they now have better coverage. According to Legere, this leaves AT&T vulnerable, and a top target.