Apr 12, 2013

Will T-Mobile's move away from cellular contracts change the industry's business model?

I was watching some YouTube at home last night and every other video had a 15 second T-Mobile ad telling me that they had rejected the traditional contract based business model. If I had to list things I hear people complaining about, their cell contracts would definitely make the Top 10 List. How likely is it that the standard 2 year prison term, I mean contract, will go the way of the dodo bird?

I certainly hope it will, especially if the other carriers start losing customers. All we can do is wait and see what happens. The sooner the "prison term" goes away, the better for all of us.
I was about to get all snarky and point out that T-Mobile was so far behind AT&T, Verizon and Sprint that the others wouldn't even notice that T-Mobile had done anything.....then I saw a headline that Verizon announced a $35 per month no-contract plan. And THEN I read the article and saw that the $35 Verizon plan was only for feature-phones AND they changed their upgrade policy to mandate 24 months before customers are eligible for an upgrade. So back to the snark.......

As long as people don't do the math and figure out how much they are actually paying over the term of their contract for that "inexpensive" iPhone, the 2 year contract model is going to stick around. Aside from T-Mobile there have been no-contract carriers for years, and even AT&T offers a pre-paid, no-contract option (GoPhone), so the industry isn't exactly a monolith. In the past, it was something of a negative status indicator when you had a no-contract phone, in part because the selection of hardware generally sucked, and in part because the carriers marketed to less affluent potential customers. I used to live in England, so when I saw Virgin Mobile here in the States, I was happy to sign up a couple of years ago. Only when some of my friends made some jokes did I realize that the target market was different in the US. The funny thing is that now a number of my friends have switched over to no-contract because they know me and how comparatively little I pay per month. I have also noticed a shift in perceptions as the selection of phones has improved.

Christopher Nerney
If T-Mobile is able to steal market share from Verizon Wireless and AT&T, there's a good chance the two-year "prison terms" will go away. After all, even large companies have to respond to effective competition or they'll pay a price.

But if T-Mobile's strategy doesn't hurt the big players, I don't see how they would be motivated to change.

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