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Summary:

Sorry, you can’t buy a $580 iPhone 5 from T-Mobile and then sign up with another carrier — you have to give T-Mo at least once month of service.

T-Mobile is taking seriously its commitment to separating the phone from the service plan. It turns out that starting April 12, you can walk out of a T-Mo store with an unlocked iPhone 5 in your hands and never deal with T-Mobile again – but you’ll have to pay the full MSRP of $650, not the carrier’s discounted price of $580.

As we reported earlier this week, T-Mobile is upending the traditional subsidy-and-contract model, selling you a device at full price but without a contract and without the device fees hidden in most carrier’s monthly rate plans. The result is a more expensive phone, but much cheaper monthly service rates, which ultimately save customers money in the long run.

03/26/2014 T-Mobile iPhone 5 unveilingWhat’s more, T-Mobile is sweetening the pot further by offering substantial discounts on the full cost of its phones. For instance, an unlocked sans-contract iPhone normally retails from Apple or other distributors for $650. T-Mobile is selling it for $580 either up front or through financing plan, making it a relative bargain. The catch is you have to sign up for one of T-Mobile’s new Simple Choice plans to gain the discount.

But signing up for a plan isn’t that much of a commitment. Remember, T-Mobile has gone contract-free. You can sign up for a single month of service and face no further commitment. If you use T-Mobile’s installment plan, your phone will be locked to the operator’s network, but as soon as you finish paying off your device (which you can do at any time) T-Mo will unlock the device.

T-Mobile, like any wholesale buyer, isn’t paying full price for the iPhone from Apple so it’s passing some of its savings along to the customer – as my colleague Kevin Tofel points out, it will likely do this for other popular devices like the Galaxy S 4. But T-Mobile also doesn’t want to be taken for a patsy. It’s not going to sell discounted phones, which buyers just take immediately to another carrier. It wants to get some modicum of service commitment – even if it’s a mere month – in exchange for that discount.

What’s interesting, though, is that T-Mobile is still selling a commitment-free iPhone for full price even if it doesn’t stand to gain from the transaction as a service provider. T-Mobile is essentially becoming a phone retailer as well as carrier, and I think that has significant implications for the industry.

Why an open device ecosystem is a good thing

If you can just walk into any store, buy a phone and pick your carrier later, then we get a model like that which has developed in Europe, where phone purchases and service plans are independent transactions. That could lead to a whole new retail marketplace in the U.S. where sellers can discount or bundle features with unlocked phones based on other factors besides contracts.

T-Mobile storeFor instance, Samsung, HTC and Nokia could build legitimate businesses in the U.S. around selling phones directly to consumers at lower prices since there’s no carrier middleman to deal with. BlackBerry could sell unlocked phones directly to businesses packaging them with its enterprise email services. BestBuy might give you a deal on a device if you sign up for Geek Squad protection. And of course, the already growing mobile virtual network operator (MVNO) community could get a big boost if there were greater phone portability.

Of course, there are some pretty big obstacles to this kind of model in the U.S. The biggest one is the fragmentation of airwaves and technologies that acts as a de facto lock for most devices to specific carrier networks. Even if you got an unlocked iPhone from T-Mobile, there are only a few other places you can take it, namely AT&T, a few regional GSM operators and a handful of MVNOs like Straight Talk.

Building that independent device market is going to be difficult and it will take a lot of consumer education. Retailers will have to explain carefully which carriers will be supported on specific devices. Luckily device technology is improving. Dual-mode GSM-CDMA devices are becoming more common and vendors are starting to pack more bands into a single device.

Everyone stands to benefit from an open device ecosystem – consumers, handset makers and, according to T-Mobile, carriers — so every step we take in that direction, no matter how small, is good one.

Feature image courtesy of Shutterstock user Arcady

  1. Yep, before we get a European-style model of cellphones, CDMA needs to be killed off on at least Verizon, and there needs to be some way to solve LTE Band 13/17 incompatibility. Otherwise, phones being sold independently from carriers is a great idea, as we no longer have to deal with the BS of a carrier not selling a phone on their network.

  2. Marvin Arnold Thursday, March 28, 2013

    Ole TMO just might be on to something!

  3. I plan on switching from Verizon to T-Moblie’s iPhone 5 offering next month and will stay with them for the foreseeable future. However even if you sign up for one month of basic service and buy an iPhone 5 straight out you’d still save $20 over buying it directly from Apple. Probably not worth the hassle though.

    Vodafone owns 50% of Verizon so they already understand the Euro model. Even thought that model isn’t perfect, implementing it in the U.S. would be a great first step.

    In the meantime, this is a Hail Mary for T-Mobile. I am really hoping that they will get a lot of support for this effort and really shake up the market. The time has come, in fact it’s way overdue.

  4. Michael Perry Goodman Monday, April 1, 2013

    Long live TMO!

  5. But What I still don’t understand why the iphone on T-Moblie is so much more expensive than on other carriers. If the iPhone is part of T-Mobile now, shouldnt it be much much cheaper than unlocked ones? Like an iPhone on AT&T is only 150 dollars. So why is the iPhone on T-Mobile 580 dollars???

  6. 580 is full price

  7. Cyberkinetic Sunday, April 14, 2013

    @George. Do the math. The price of that so called phone discount is included in your higher monthly bill.

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