Why the big boost? América Móvil, the Latin America multinational telecom provider that owns TracFone, didn’t give specifics. But it just so happens that in January TracFone started selling the iPhone 5 at Walmart through its Straight Talk brand.

The offer presents a cheap alternative for consumers craving Apple’s latest and greatest device. You still have to pay the unsubsidized iPhone 5 price of $649, but Walmart spreads it out over 26 monthly payments of $25. Meanwhile Straight Talk’s prepaid service comes in at just $45 a month, including unlimited SMS, voice and data, though Straight Talk will start throttling back speeds if you consume much more than 2 GB each month.

That plan is even cheaper than T-Mobile’s new “Un-carrier” $50 tier while also offering more data. The major drawback is that you  don’t get 4G access.  As a mobile virtual network operator (MVNO), TracFone buys network access from the major carriers. The iPhone deal uses either Sprint or Verizon Wireless’s CDMA networks, but so far Tracfone hasn’t gotten permission from either to use their LTE services, which can deliver data speeds up ten times faster than their older 3G EV-DO systems.

In its earnings statement (PDF), América Móvil said that its big subscriber gains are coming from Straight Talk and its new brand targeting Mexican nationals Telcel América. Both brands offer more expensive plans than Tracfone’s core prepaid service focused on budget users. Consequently, its average revenue per subscriber jumped 16 percent year over year to $19 a month.

There’s no way to know for certain whether the iPhone is driving those Straight Talk gains unless Tracfone starts releasing device figures. But more of the prepaid operators’ customers seem to be gravitating toward higher-end devices like the iPhone and purchasing more expensive service plans.

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Speaking to reporters at a Verizon event in New York City, McAdam said the carrier would watch T-Mobile’s new no-contract strategy closely to see how consumers respond. “I’m happy when I see something different tried,” CNET quoted McAdam as saying. “We can react quickly to consumers’ shifting needs.”

Lowell McAdam (right) with Google’s Eric Schmidt

To be honest, you wouldn’t expect McAdam to say anything different. In the past, carriers have expressed dissatisfaction with the subsidy model that dominates the U.S. mobile industry. That model dictates they sell increasingly expensive smartphones at cut-rate prices and thus take a big financial hit when they first sign up a new customer. Eventually they recoup those costs over the course of a two-year contract through higher service fees.

Most carriers have already eliminated subsidies entirely for tablets, and as McAdam points out, they would more than willing to do so for phones, if customers are amendable. That said, Verizon has done quite well for itself with the current system — it has no reason to gunk up the works unless there is some massive shift in consumer sentiment.

There’s a reason why T-Mobile was the carrier to challenge the long-established contract-and-subsidy model: it had nothing to lose. It is the smallest — by a big margin — of the four national operators, and for the last several years it has barely grown. You can call its Un-carrier strategy an act of genius or you can call it an act of desperation, but T-Mobile had to do something and had to do that something quick. McAdam only has to sit back and wait to see if it works. And he’ll likely have to wait a while since many of the customers who might be interested in what T-Mo is selling are still locked into contracts.

So what if T-Mo’s new contract-free plans prove wildly successful? Would other carriers give up on contracts completely? I seriously doubt it. Verizon, AT&T and Sprint may have their issues with the subsidy model, but they also love to the stability of long-term contracts. The last thing they want is a constantly shifting customer base, in which huge numbers of subscribers turn over each quarter. Even if the carriers didn’t have to absorb device subsidies, there are still substantial costs associated with acquiring new customers. They would much rather just lock down the ones they have.

All three carriers offer prepaid services for customers who demand or don’t qualify for postpaid services, and most carriers will sell you a postpaid plan without a contract if you pay for your device upfront. In fact, they benefit considerably if you do so because they’ll charge you the same monthly rates they do for subsidized customers – they get their cake and eat it too.

That’s where I think the other carriers will have the biggest difficulty adjusting to contract-free models. To make that model the work they’ll have to charge lower voice, SMS and data rates to those customers who eschew subsidies. If carriers are no longer recouping the cost of the device, they can’t justify the rates they charge today. Lowering rates is not something they want to do.

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T-Mobile has said it plans to offer shared data pools to its business customers, and on Friday Sprint officially began selling buckets of communal data to its small business customers. The plans are only available through its business sales channels and support a maximum of 30 LTE smartphones, tablets and data modems. Like AT&T and Verizon, Sprint is charging a monthly per-device fee, for instance $40 for a smartphone with unlimited talk and text included. The pricing of the data plans themselves start at $140 a month for 20 GB split between up to 10 devices. At the high end is a 60 GB / $320 plan supporting up 30 lines.

Sprint is also offering a set of shared plans targeting data-only tablets and modems — an interesting use case brought on by the BYOD trend. As employees make their personal smartphones their business handsets, companies may opt to make the tablet or a wirelessly connected laptop the only mobile work tool available to their employees. Sprint is charging $10 a month to connect a tablet, $20 to connect a modem, and offering shared data plans starting at $60 for 10 GB and topping out at 60 GB for $320.

Since last summer Sprint’s mantra has been “Say no to sharing data,” and it has launched advertising and web campaigns that attempted to show how consumers could save money by adopting its individual unlimited plans. Both Sprint and T-Mobile have maintained that not only do subscribers get a better deal with their unlimited plans, but also THAT the lack of A cap makes everything so much simpler.

Why the change of heart when it comes to business plans then? Likely, Sprint and T-Mobile are realizing that the same arguments that work with consumers aren’t going to work with businesses. Small companies value simplicity as well, but they’re willing to take on some complexity if it means saving some cash each month. And on account with 20 or 30 devices, those savings could be substantial.

Buying two unlimited plans at $30 a month for unlimited data might make sense for a family of two, but paying $500 to $600 a month to attach 20 smartphones to the unlimited spigot makes little sense if you can buy an enormous bucket of gigabytes for half the cost. Keep in mind, as well, that neither T-Mobile or Sprint offer unlimited plans for tablets or modems, so any business owner connecting anything besides smartphones would have had to manage caps under the old pricing plans anyway.

I don’t think Sprint and T-Mobile are swallowing the data-sharing pill just yet. For them unlimited is still a key differentiator in the consumer market, but they are likely very concerned that Verizon and AT&T will steal their business customers with these new shared pricing models. That has forced them to respond in kind.

In Sprint’s case at least, it isn’t just responding, it’s attacking. Sprint’s new plans undercut Verizon’s recently launched small business tiers. For instance, Verizon is charging $375 a month for 50 GB of shared data between, while Sprint is offering 60 GB for $350. Sprint and T-Mobile may be forced to play the data share game, but it looks like they’re going to maintain their reputations for offering cheaper service.

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Iliad founder Xavier Neil told France’s Capital magazine that those fees wind up amounting to interest rates of 300 to 400 percent in a one-to two-year contract. That may sound excessive, but if you take a closer look at huge gap in pricing between prepaid and postpaid carriers, it doesn’t seem too far off base.

Free Mobile, for instance, doesn’t offer a subsidy on its devices and it manages to sell voice and data at ridiculously low rates, which is what set off the France’s price war in the first place. Of course, Free uses a few technical tricks to keep its prices low, the biggest being the 4 million home and business Wi-Fi access points it uses to offload data traffic.

But shunting traffic off of expensive cellular networks doesn’t explain the price differences entirely. You only have to look to the U.S. prepaid and mobile virtual network operator (MVNO) sectors to see that. Prepaid operators like Leap Wireless’s Cricket and MetroPCS offer voice and data plan equivalents to AT&T and Verizon’s at very steep discounts. They require customers to pay all or most of the costs of their handsets up front. In exchange, they not only charge cheaper rates but don’t tie customers down to contracts.

The price gap is even more visible when you start looking at the new batch of MVNOs emerging in the U.S. Operators like TracFone’s Straight Talk, H2O Wireless and Red Pocket just sell SIM cards, but they offer unlimited voice and SMS plans as well as data buckets that undercut major carriers’ prices by half or more. These operators have no ingrained technology advantage. They’re buying their minutes and bytes from AT&T and T-Mobile at wholesale rates, but they’re charging significantly less when it comes to retailing the final product.

In Europe, procuring your device and your service plan separately is common, but it’s still very much a foreign concept in the U.S. where consumers have become accustomed to the idea that smartphones are cheap disposable electronic goods. Carriers have been more than willing to reinforce that misconception so long as customers are willing to pay high monthly rates and sign long-term contracts.

There are signs of change, though. T-Mobile – which already offers some of the cheapest rates for a major carrier – is aggressively pushing its value plans, which offer significant discounts on voice and data plans if subscribers pay for their phones up front or bring their own devices to the party. It’s going to take more than just T-Mobile to change consumer mindset. Other carriers have signaled they’re open to the idea of unsubsidized plans, but the impetus for change may come from consumers, not carriers.

There’s a growing discontent with the high price of mobile service, and a sizable number of prepaid operators and MVNOs have arisen to feed that discontent. Eventually the realization will follow that the high prices we’re paying aren’t necessarily for data, rather we’re paying back the mortgage on our phones.

Featured photo courtesy of Shutterstock user Stuart Miles; SIM cards image courtesy of Flickr user mroach

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FT reported another interesting metric in its first quarter earnings. While the flight to Free is pressuring its profits, revenues and margins, Free’s owner Iliad is also making a substantial contribution to Orange’s wholesale roaming business. Iliad has only built a limited 3G network of its own, so to fill in the gaps it relies on an MVNO agreement with Orange. Orange originally expected its roaming agreement with Iliad to bring €1 billion (U.S. $1.3 billion) over five years. Now Orange expects to see that first billion in just two years.

Apparently Free has resorted to buying a lot more capacity than it expected – or at least more than FT expected. Meanwhile, financial firm Jefferies believes that FT’s lower-than-expected decline in revenues for the quarter indicate that many of its subscriber losses were among budget customers lured by the Free’s lowest price €2 a month plans. If that’s the case, Free could find itself in a predicament: it may rake in new customers, but the costs it incurs from buying all of that 3G capacity may outstrip its revenues. We’ll know more when Iliad, reports its first-quarter numbers.

As long Free can keep up the pressure, though, there’s no question that it will continue to upend France’s normally staid wireless industry. Though the initial mad dash to Free appears to be over – and even shows signs of reversing — analysts project that Bouygues and Vivendi’s SFR will report similar big subscriber losses in the coming weeks. The Big 3 have all started cutting their rates to counter the Free threat. Vivendi has brought in a new CEO from Vodafone to head up SFR, while Bouygues is buying up one of Free’s smaller competitors, Darty Telecom, an IPTV and residential broadband provider that also offers mobile services as an MVNO.

Free Mobile still has a few tricks up its sleeve though. Last month it activated a critical component of its strategy, turning 4 million Wi-Fi access points embedded in its wireline customers’ set-top boxes into a private mobile offload network. While the network is limited to Iliad’s customers homes, offices and their vicinities, such a huge density of Wi-Fi could move massive amounts of data traffic off of HSPA+. That would not only conserve its own 3G capacity but potentially spare Free from relying so much on its Orange wholesale agreement.

Image of Eugene Delacroix painting courtesy of the Louvre

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Verizon stops offering unlimited plans on Thursday for new customers, and much like when AT&T halted its unlimited plans last June, the world will not end. However, it will get more confusing as customers try to figure out how much data they need to buy and developers wait to see what happens to their businesses. No matter what Verizon says, though, this pricing shift isn’t about supply or a lack of mobile capacity but rather about demand. In short, because we want mobile connectivity wherever we go, Verizon is willing to bet we will pay for it.

Why this pricing? Why now?

Verizon will now charge new customers $30 for 2 GB of data at the low end and $80 for 10 GB of data on the high end. The ability to buy different buckets of data is familiar to the telcos, which offered the same sort of pricing in the form of minutes for years. It is also a good way to milk profits, since consumers will generally pick a bucket that offers more capacity than what they need so they don’t go over the limit.

But unlike minutes, a gigabyte isn’t something consumers are familiar with, because it can be used for various web activities that vary in how much data is used. That means there is both a greater opportunity to capitalize on ignorance but also a chance to stifle innovation and mobile app use. Suddenly consumers will wonder if uploading that photo or watching that YouTube stream is really worth it. Heck, I do that today when it comes to streaming music using Pandora, and I never even come close to using more than 2 GB on my phone. Suddenly, instead of feeling free to experiment with silly apps that could become the next Foursquare, consumers may decide to forego an app.

A better option

So if gigabyte buckets are less than ideal, what would be better? If carriers are so worried about network congestion, then one option would be congestion-based pricing, where carriers charge more for using their networks during peak traffic. Another option would be to slow the data rate after a set amount of data is used, like T-Mobile does.

If this is more about making profits as opposed to congestion management (these are businesses after all), then I think plans that use more familiar metrics and that can be changed easily are better. So instead of buying a bucket of gigabytes, perhaps a heavy Instagram user might choose a photo-sharing plan that allows for unlimited uploads and only 5 hours of streaming video a month. Orange does this in several European countries and is even experimenting with personalized pricing plans for customers.

What about usage-based plans?

Whenever I cover pricing, a lot of people ask why we can’t just move to straight usage-based plans, where carriers charge per gigabyte or megabyte, much like people are charged for electricity. It’s a reasonable option, except that most people forget or ignore the fact that electricity is a regulated industry with the government involved in price setting, something I’d hate to see happen in the wireless industry. And the reason the government is involved? Electricity is a monopoly or duopoly in most places.

Now, AT&T is all about trying to prove competition in the wireless industry as it seeks to gobble up T-Mobile, but most people realize that the wireless industry is about as competitive as my challenging my four-year-old to a race. AT&T tends to move in lockstep on pricing changes and on issues such as ETF fees. Sure, there was a year before Verizon followed AT&T by cutting off unlimited plans, but it happened. And there was about half a year between AT&T following Verizon in charging high early-termination fees. And when the two largest carriers decided they had to somewhat match Sprint’s moves after it offered unlimited voice and data, they pretty much came out with similar and more-expensive “everything” plans.

Competitive? Maybe in the race to be less consumer-friendly, but not really when it comes to driving down prices. And since no one knows how much Verizon and AT&T pay to shuffle bits around the mobile web, it would be hard to keep them honest as it were in terms of charging a reasonable rate for a gigabyte. For those who love the free market, just look at how fast texting grew in Europe, where it was cheaper than some voice minutes, as opposed to here in America, where the carriers charged an arm and a leg for each SMS. Twitter couldn’t have flourished in that environment. Neither could ChaCha or any other service that shoots an SMS.

Could Wi-Fi help keep the flat-rate plan viable?

In general the loss of the flat-rate plan is inevitable, given the limitations of the wireless networks. But what if the wireless networks weren’t all cellular? Weaving Wi-Fi into a carrier network, as KDDI is, could change the load on the network in a way that allows for both capacity and profits. Wi-Fi networks are cheaper to deploy and are becoming carrier-grade. What if someone purchases an unlimited plan with the understanding that the carrier could shunt them to a Wi-Fi network whenever one is available?

As carriers pursue their new pricing strategies around mobile broadband ahead of faster Long Term Evolution networks and more-capable devices, they’re clearly keeping an eye on the bottom line, not pushing for American innovation in wireless. And that’s really a shame, because that kind of thinking slows the industry’s potential. Instead of becoming a platform for new ideas, mobile broadband has become a platform for squeezing easy profits.

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