73 Comments

Summary:

At Deutsche Telekom’s analyst conference, T-Mobile CEO John Legere revealed that T-Mo’s deal with Apple will include the iPhone, but it will also coincide with a radical change in its pricing. It’s eliminating subsidies entirely, charging customers full price for their devices.

T-Mobile US CEO John Legere

T-Mobile USA CEO John Legere confirmed that the iPhone will be among the Apple products that T-Mobile sells next year, but he said that T-Mo will sell it in a far different way than other carriers. T-Mobile is eliminating all device subsidies in 2013, requiring new customers to pay full price for their phones up front, buy it on installment or bring their own unlocked devices, Legere said speaking at corporate parent Deutsche Telekom’s Capital Markets Day in Bonn.

T-Mobile will shift entirely to its unsubsidized Value Plans, which offer customers far cheaper rates for voice and particular data. Traditionally carriers factor subsidies into their normal contracts rates – basically you’re paying a mortgage on your phone. With the Value program, T-Mobile is keeping the contract, but passing what it saves on subsidies back to consumer.

According to T-Mobile, 80 percent of its activations in the last quarter were for value plans, which leads it to believe there’s a huge demand for this kind of a model. The question is whether the iPhone breaks the model. The unlocked, unsubsidized price of the iPhone 5 is steep, between $650 to $850 depending on the model. One of the reasons the iPhone is so popular is because the operators offer big subsidies for the devices, driving the out-of-pocket costs to as low as $200.

t-mobile-iphone

T-Mobile will have to explain to customers that they will actually save money over the length of a two-year contract by paying a lower value plan rate. And while there would be truth in T-Mo’s claims, it’s still a hard sell to many consumers, especially with the iPhone’s huge price tag dangling in front of them.

But T-Mobile has something up its sleeve. Legere said that T-Mobile would offer the iPhone in a unique way. He implied that T-Mobile could heavily finance the device, selling it for $99 and then charging $15 to $20 a month in payments over 20 months. That kind of financing plan, however, would look very much like subsidized contract plan to the customer.

“When this device rolls out I can only tell you it will be a dramatically different experience, and I can only tell you that of all the reports that have been written about what’s going to happen when it comes out, they’re all wrong,” Legere said.

So we know T-Mobile is getting the iPhone, and we know it won’t be subsidized. The only remaining question is when. In the next six months T-Mobile will likely complete the reconfiguration of HSPA+ on the 1900 MHz PCS band, which will make its 3G network iPhone compatible nationwide (today only its 2G service works on the iPhone). Or Apple may want to wait for T-Mobile’s LTE network, which the carrier plans to launch in the latter half of 2013. If Apple does wait for LTE, that almost certainly means T-Mobile will have to wait for the next generation of iPhone, whatever it happens to be called.

Here’s the video of Legere’s talk along with a presentation by CTO Neville Ray. In it they reveal a bunch of interesting details about becoming America’s “Un-carrier”:

  1. Michael Santoroski Thursday, December 6, 2012

    I will be interested to see what real unsubsidized prices are. I think the carriers just make up “retail pricing.” I mean how can an iPhone 5 cost $650, when a Nexus 7 costs $199, or an iPad mini is $329?

    Share
    1. Actually those are the real unsubsidized prices. They’re what Apple charges in its own stores for unlocked devices. As for the second question, Apple makes a BIG margin off of the iPhone. Adding a complete compliment of 2G/3G/4G radios to a device does add cost but certainly not $300 worth. There’s a reason why Apple investors are very wealthy.

      Share
    2. Keep in mind that Nexus 7′s are being sold below actual cost.

      Share
    3. To add to Kevin’s response,

      For thirty years, Apple products have always been close to twice as much as competitors. In some cases three times as much. We can thank carriers for absorbing and offsetting the high subsidy.

      If carriers did not subsidize phones, the iPhone would have rotted on shelves just like their companies products before. No one wants to spend twice as much on a product of this nature that other products can easily do for far cheaper.

      Apple got rich very quickly because of inflated pricing and customers not viewing this markup.

      My generation left Apple for dead. Thanks to Apple’s marketing and carrier subsidies, this new generation was duped. It has fueled the monster. This company has only one goal. To extract as much dollars out of consumers while spending the least amount in offerings. Why do people think Apple always leaves key offerings out of one iteration while competition does not? Because so far, unsuspecting consumers have given Apple no reason to.

      It really is time for consumers to actually see the price difference of competitors over Apple. I welcome unsubsized devices. This will push prices down even further.

      John B.

      Share
      1. Who, exactly, is your generation?

        Share
      2. Lots of misinformation in here.

        “For thirty years, Apple products have always been close to twice as much as competitors.”

        No. During the 90s, apple hardware was generally more expensive than similarly specced gray-box PCs, but during that same time, Apple was slowly dipping toward bankruptcy. If you spec out an Apple laptop today and compare it to a PC laptop with similar hardware specs (assuming you can find one), Apple is very competitive on price. For a few years after the Intel transition, Macs were almost always cheaper than PCs with similar hardware specs. Apple just didn’t sell low-end computers unlike most $300 PCs which were using three-year-old tech. Oddly enough, it was during this time that Apple was gaining market share. Funny how that works.

        I won’t try to defend Apple’s pricing on memory which is historically inflated. But as a general rule, they’re actually pretty competitive on price and have been for over a decade.

        “If carriers did not subsidize phones, the iPhone would have rotted on shelves just like their companies products before.”

        Subsidies are a purely US phenomenon. The iPhone sells just as well internationally as it does here, and it’s not subsidized by most carriers outside the US. Android is still outselling the iPhone everywhere, but unsubsidized android phones are frequently the same price iPhones, sometimes (Samsung) even more expensive.

        “My generation left Apple for dead. Thanks to Apple’s marketing and carrier subsidies, this new generation was duped. It has fueled the monster. This company has only one goal. To extract as much dollars out of consumers while spending the least amount in offerings. Why do people think Apple always leaves key offerings out of one iteration while competition does not?”

        Wow, just wow. Ignoring the baseless hyperbole (I’ll just assume you’re Michael Dell from here on out) every company has only one goal. Sorry to break it to you but MS and Google have the same goal. And if you want to talk about key features missing from phones let’s look at the history of Motorola’s Droid, or Palm’s failed WebOS, or every Windows phone ever made, or Samsung’s early android offerings or… the list goes on.

        I have an unlocked Nexus 4 on T-mobile personally, because it’s a great device and I’m kind of tired of Apple dragging their feet on substantial updates to IOS. But I’m not delusional about it. I welcome unsubsidized devices because it will finally show people how much the carriers are overcharging them and it might open the door for more devices that aren’t hamstrung by idiotic carrier restrictions (no tethering, no VOIP without wifi) which are designed solely to protect their own predatory business practices. This isn’t about war with Apple. This is about consumers freeing themselves from price-fixing carrier networks.

        Share
      3. Grover Saunders Friday, December 7, 2012

        Almost nothing you posted here matches up with reality.

        Share
      4. John S. Wilson Friday, December 7, 2012

        If iPhones are so overpriced than why do they command a healthy premium even on the used phone market? If your assertions were correct then people wouldn’t be willing to pay $650 for an iPhone 5 or $300 for a 4S on Craigslist.

        Share
      5. You have no idea what you’re talking about. The iPad is not subsidized, yet it is so far the most successful computer and/or consumer electronic device in the history of mankind.

        And the expensive Mac line-up has been gaining market share on the wintel stuff for 28 straight quarters, again with no subsidy.

        Of course, you know how the iPod defined and dominated its industry, again without subsidy.

        Are you ignorant or envious of Apple?

        Share
      6. AJ,

        My generation is the one where we didn’t allow companies like Apple to dictate what we could or couldn’t have on products that we bought. We weren’t impressionable by pretty things. Not that we weren’t attracted to these things. It’s just that we did our best to think hard and try not to engage in that kind of control. We worked hard for our money and purchased more freedom to do as WE felt we needed or wanted. Not what the COMPANY felt we needed or wanted. It boils down to integrity of self-control. We were leaders; not followers. Today’s generation wants what it wants no matter what cost or what long term disadvantages it can cause. It “seems” at times as though it can’t think for itself or has no wish to.

        Matt Popke,

        I won’t dig too deep into your disagreement with my post, but I do feel most of my rant is due to the experience I and others have had. Macs WERE indeed more expensive than PCs. Apple’s sales were driven by the need of designers, engineers and artists because of the graphical advanages. Other than that, Apple was not widely received due to the highly proprietary offerings, products, accessories and tightly wound control of these offerings. It was Apple’s way or the highway. Many of us left Apple or didn’t went to become victims of this type of vertical integrated ecosystem. Ok, Apple didn’t want to dabble in “low end” products but maybe they should’ve. Even with a 2% marketshare, Apple wanted to command a high profit margin. Even on the brink of bankruptcy, Apple was obstinate for this thinking. Can you honestly claim Apple’s DNA has changed? Steve jobs preyed on this new generation with revolution and proceeded to offer the least while making huge profit margins. No camera, text messaging, picture mail for the first couple iterations while everyone else was. No removable battery, no expandle memory, no flash, no LTE, no NFC, no larger screen. Apple tells people when they are ready; not the other way around. It is very fortunate that Steve Jobs regained the helm and grabbed the attention of today’s consumers. He brought a company on the verge of bankruptcy, to one of the wealthiest corporations in the world by following this tradition. They now have the money to support the practice of offering less than others yet charging more. In our day, this is exactly what almost led to Apple’s demise.

        John B.

        Share
      7. nikolaus heger Sunday, December 9, 2012

        Americans. It’s 2012. If you cannot see past the borders of your own county, great as it may be, it’s just sad. Open up that thing called the internet and check out what’s happening elsewhere.
        iPhones sell just as well over here, or even better as carriers are not pushing the cheaper Android devices overseas.

        Share
      8. Miranda Thomson Thursday, January 10, 2013

        Okay John, now you’re pissing me off. Apple takes a single piece of aluminum for its laptop computers and lathes, cuts and grinds it into the laptop’s base. They use the best parts, and I would gladly pay double for a Mac. I don’t even have an iPhone yet, but I know it has to be much better than anything else on the market if it’s anything like their computers. Macs were only 3% of market share when Steve Jobs took over, but they’re at 12% now. It’s because they’re the best machine on the market, by far. I’m typing on an eight year old G4 Mac, and bought a top of the line desktop Dell. What a piece of garbage!!! It was irreversibly screwed up by about a thousand different viruses and things falling off and out. It cost me $1300.00 and lasted six months. Dell, HP, and any of the other PC companies are the rip offs if you ask me. But John, I doubt if you’re going to listen. You’re probably a PC nut, just like I’m an Apple freak. The difference is, I’m right and you are WRONG!!!

        Share
    4. Those are the real prices. Go to apple.com/iphone, click “Buy Now”, click “Buy Now” again, click a color, then click “Or get iPhone unlocked and contract-free”. 16GB=$649, 32GB=$749, 64GB=$849. That’s what it costs.

      The cheapest iPad mini costs half as much because it has a generation-old CPU, a camera with half the pixel count, a non-Retina display, no cellular antennas, no GPS receiver, no vibrator, doesn’t include earphones, an so on. Technology-wise, it’s somewhere between iPhone 3GS and iPhone 4 (but without any telephony parts), and if you look to buy an iPhone of that era today (on Craigslist or Ebay) you’ll pay $200-300 for it. Old technology always costs less.

      Share
    5. First, the N7 has no cell phone capability. Neither does the Mini in its base configuration. The iPhone does, and fits it in a much smaller space.

      Second, the list price for an unlocked Galaxy S3 – which is the correct comparison to the iPhone 5 – is $899. On Amazon, it’s $580. So it’s not like the other vendors list, unlocked price is much different than Apple’s.

      Third, if phone manufacturers can charge these prices and sell through inventory it is Business 101 that they’d do so. No one will sell something for cheap if the market will pay more.

      Share
      1. That is true on the s3 pricing but with phones like the Nexus 4 selling for around 300$ I think Google is on to something there

        Share
      2. Casey,

        And Google sells Nexus devices at basically no margin meaning they make nothing on the device. They make money on ads. Apple makes money on hardware. You’re comparing two different things – of course the Nexus is cheaper, Google’s not taking a profit.

        Share
  2. This is great news for the consumer, and ultimately, for device manufacturers. It will open up a market for used phones, especially once T-Mo’s HSPA+ network is compatible with ATT’s. Having a carrier that rewards you for using a 2-year old phone will keep pressure on the other carriers to keep the price of their rates and phones down, as long as the monthly fee T-Mo charges is significant enough (it can’t be $10).

    I would expect Sprint to do the same once Softbank owns them.

    Share
  3. Perfect. US will finally join the Rest of the World

    Share
    1. Joseph Singer Friday, December 7, 2012

      Actually, that’s not entirely true. If you go to the UK to Car Phone Warehouse or Phone House on the continent you’ll see offers f or free or cheap mobiles but only if you commit to a term of 18 months or more.

      Share
      1. nikolaus heger Sunday, December 9, 2012

        The point is though, you have an option.

        You can get a full price phone with a cheap plan; or a subsidized phone with an expensive plan that you will be locked in on for 2 years.

        In the USA, you can get a subsidized phone with an expensive plan, or a full price phone with an expensive plan.

        Share
  4. Perfect. US will finally join the Rest of the World.

    Share
  5. This is a very good idea and ofc it’s just a more flexible way of doing things and a renaming for subsidies.
    They can offer better plans to folks buying unlocked devices,or that have a device already and they could allow folks do decide how fast they pay for the device.They could also have a far wider selection of devices,at least online and if Google (and maybe others ) start selling devices for cheap T-Mo is the only carrier that has subscriptions way cheaper than the others since they are not inflated by subsidies.(300$ for a Nexus 4+ way cheaper subscription= huge savings).

    Share
  6. It will definitely highlight the differences the vendors charge for phones. The consumer will see the real pricing of a Nexus 4 vs Galaxy S3 vs iPhone 5 and can make decisions about how much more their preferred phone is really worth to them. Overall, I think this will be a real win for the consumer, whether you’re looking for a new iPhone, Android phone, or just a $20 phone that makes phone calls.

    Share
  7. Well, I know that my HTC Sensation 4G, when I got it last year, was 600 dollars for the unlocked version. I paid 200 for mine with the contract on T-mo. I bought my wife one for Valentines day 2012. I guess we’ll be getting on the value plan in March 2013, when our joint, all-you-can eat contract plan expires.

    Share
  8. See also: Australia.

    Share
  9. I pay on $215 (with a 24% discount thru my employer) for 5 iphones in my family plan 700 mins + unlimited text and 1000s of Roll over minutes that AT&T reps gives me.
    Please tell me if anyone can beat it?

    Share
    1. Only 4 iPhones on our t-mo plan, but $125 a month. To be fair one doesn’t have data, but we could turn it on for another $10

      Share
    2. I have 4 lines new galaxy phones. 700 Shared min, unlimited text, data plans on three lines two with hotspot. 130 a month with Tmobile value plan! Will not blink a eye at there new system full price for new phone no interest installment fine with me. Thanks for allowing my bill to go down 100 dollars a month.

      Share
      1. Your lucky there. I have 4 lines, unlimited text&min and share 4gb of data between all lines and my bill with my 18%corparate discount is around 240$ a month. I’m very interested in jumping the fence with Tmobile once they start selling the iphone.

        Share
  10. How do they justify the contract then? Before it was tied to the phone “mortgage” but now if you bring your own device there is no reason to locked in for two years.

    Share
    1. Technically it’s not locked, but yes you do have to commit to a contract. In truth, there really is still a subsidy here: in exchange for cheaper pricing you make a long-term commitment. It’s a flaw in T-Mo’s strategy but it does at least it doesn’t require both paying a premium and committing to a contract.

      Share
      1. Its a pretty big flaw in their strategy. Especially since today they have all you can eat month-to -month plan for 50 dollars.

        Share
      2. The only flaw is the fact that people break the contract andstill owe money on the phones they purchased. The “all you can eat 50 dollar plan” is a prepaid plan where you either bring your own phone or purchase one full price without the option of installments.

        Share
    2. Contract since if using payments or installments to pay off device….if you have good credit this option has no interest. Tmo takes a risk on customer but wants commitment from customer. I used before and has been positive and still saving $.

      Share
      1. You sign a contract because you are getting a low rate with the ability to do installments if you choose to buy a phone. However, there is NO interest no matter what your credit is. T-mobile is a cell phone provider not a financial institution.

        Share
      2. So, Lyndsay, why would I sign a contract if I bring my own phone?

        Share

Comments have been disabled for this post