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T-Mobile CEO confirms the iPhone and the death of phone subsidies

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T-Mobile USA CEO John Legere confirmed that the iPhone will be among the Apple(s aapl) 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 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”:

73 Responses to “T-Mobile CEO confirms the iPhone and the death of phone subsidies”

  1. Yeah. I just renewed contract. Can’t get an android for under $400. $200 down $20 a month for two years. I feel misled, I was looking to spend $150 or less on a smart phone since it was upgrade time. Anyone have a newer 8mega pixel camera android phone contact me. I’ll get one. Beat the system. CEOs message was not clear at customer service level.

  2. This is almost always exclusively the way Asian markets behave. Here in Sri Lanka we never get subsidized prices even for cheap feature phones. Our consumers always pay the full price up front or get register with easy payment scheme with a bank, not with the carrier. Carrier sells just the SIM or a package at steep low price. A SIM is about 1.5USD with few voice minuets. Then users just top it up when thy need. Packages are also cheap for example I use post paid package of 5 voice SIMs and Two Data (10GB each) SIMs and always have paid less than 50 USD for month for the last 2 years

    The system just works though carriers have tried subsidized schemes they never able to sell those People always bring in their phones, when purchased at full price when they want them without getting restricted to year bound plans

    We love the way we can get any phone we wish at any given moment and just put our sim and use it

    Colombo, Sri Lanka

  3. nikolaus heger

    T-Mobile is trying honesty with the customer? Well that is certainly a novel approach, and it kind of makes sense, after everything else has failed for them.

    I think they’ll win. Just them offering this model of full price phones (with a loan option) plus cheap plans will make many people realize that that’s what they have actually been doing all this time in the subsidy model, except without transparency or choice.

  4. xxmanny88xx

    TMO is so much better then the rest, I have 5 lines with tmo and only pay $104 a month through my company. … you all have to wake up and realize we’re the only country left in the civilized world allowing companies like Verizon, sprint, at&t to do this to their customers. I erge you all to do some research before acting like you know it all.

  5. rick gregory

    I was with T-Mo for 11 years until this summer. My contract ended and I found I could take my Vibrant (Galaxy S basically) to Straight Talk and save $40/month ($50 all in vs $90). To entice me back T-Mo would have to beat that and do it without a contract either by offering me a cheaper price or iving me something compelling like 4G for the same price. IF they want me to sign a contract I need still more incentive; as it is, I can take my phone to someone else if ST annoys me.

    Contracts make no sense outside of a subsidy or some other incentive to the customer. Consider this – when I decide I want to get a new phone, let’s say I spring for the iPhone 5. I can get a microsim from Straight Talk for $15 and pay my $50/month with no contract obligation. WHy would I pay the same amount to T-Mobile AND sign a contract? I can only see one reason I’d do this — if they offer me financing on the iPhone and I’m paying in installments. If I pay upfront, though, signing a contract has zero benefit to me.

    • Joseph Singer

      You evidently did not read the article since it states that the MO in 2013 will be for no contracts with people buying devices at full price and if desired you can pay for the device for $15 or $20 per month in installments. You’re basically getting a “subsidy” without getting the subsidy up front.

  6. This will never be cheaper than subsidies UNLESS they’re giving discounts of $20 PER LINE even in family plans. 20*24 = 480. Smartphones are usually $500+, discounts need to be closer to $25 PER line. What is an issue here also, is they dont work on bands internationally. So really, Tmobile gets stuck with crappy phones because these phones are still going to be custom for US bands and Tmobile won’t get the benefit of getting international phones which would help them the most with their business model. This may just drive more people out than in. Of course with the talks of repharming the 1900mhz, it would be ok. BUT, on tmobile site, they say only 2100mhz capable phones would be able to pick up 3g/4g signal on Tmobile, so therefore, this throws out all international versions of phones. Unless a manufacturer makes a phone for US market, you’re pretty much done.

    So in long run, TMobile makes more cash unsubsidizing your phones because their line prices are not going to be cheap enough to make it worth while. They should’ve just made better deals with manufacturers and gotten more android users by better pricing. Use the $300 price point for Nexus 4 as a bargaining chip, and then subsidize to a $100 price point. People will spend $100 on phones for a 2 year contract. They can lower prices by say, $5 bucks across the board, and do just fine.

    • Kevin Fitchard

      Hi Tom, where are you seeing subsidies of $500+? The iPhone has one of the highest subsidies and that’s about $450. Typically you see subsidies of about $300 from T-Mo before manufacturer rebates.

    • You’re assumption is based on the premise that everyone will opt for a different phone after the two year period is up AND they will pick higher end smartphones as replacements. While you say that smartphones are usually $500+, I’m sure you know that there are fully functional smartphones retailed by T-Mobile that are in the $300-$400 range. If you are a user that tends to gravitate toward these cheaper smartphones, then it’d be advantageous for you to go for T-Mobile’s new plan pricing as you end up paying less over the two year period. However, as you rightfully contend, if your desired smartphone retails for more than $480, then this may not be the right choice for you especially if you intend to upgrade your phone after two years (although if you keep the pricey phone longer than two years, you begin to recoup your cost little by little).

      The current model by the other big hitters is disadvantageous to those who choose to keep their phones longer than two years. As others have indicated, these users still pay the same rate as they were paying when they first acquired their phone and, in essence, could be paying more than retail for their phone each and every month after the two years (depending on the smartphone selected).

  7. Jerry Ballard

    I wonder what this will do to iPhone sales, since there’s less incentive for me to get a new phone every 2 years. If I can get by with my old iPhone, then my amortized costs become progressively cheaper the longer I keep it.

  8. minimalist

    All I can say is the savings over the life of the service had better be significant and they better have a really clever way to market the new pricing to consumers. Because telling someone they get to pay 650 bucks for a phone and then are still locked into a 2 year contract is not very compelling if all they knock off the service price is 10 or so bucks a month. They need to drop the prices to Cricket and Virgin mobile levels (45-50 bucks a month) to make them worthwhile.

    I also wonder if they will have steep ETF’s to discourage people from breaking contracts as well and how exactly they will justify them if you paid for your phone in full up front?

    • John S. Wilson

      Maybe, maybe not. As far as I know, there isn’t one single carrier in the US doing prepaid type pricing ($45-60) month with 4G service. So if Tmobile could offer such pricing and 4G that is certainly a compelling arrangement.

      • minimalist

        But prices are already coming down. My cost per month on Verizon with a new share everything plan is now down to 65 a month (and that includes taxes). Granted, I get those prices by sharing 6GB with 2 other iPhones in my family but that’s certainly not an uncommon scenario.

        How T-Mobile finds a compelling price for their plans between 50 and 65 dollars that makes paying full price for the phone seem like a good deal is beyond me. Even a 15 dollar a month savings only adds up to 360 dollar savings over 2 years.

      • This is regards to minimalist- curious how your paying 195$ with taxes for 3 lines plus 6 gb of data on Verizon’s share everything plan. Currently I’m on the same plan with 4 lines though. But if you break down pricing it should be as follows
        Line 1-40$ monthly charge
        6gb data-70$ monthly charge.
        Grand total WITHOUT taxes is 190$

      • minimalist

        One of the lines has a slight discount but even without it you are still onloy talking 70/month for each line…. which is a far cry from the 100-110/month a single 2GB iPhone place costed just 2 years ago on AT&T and Verizon.

  9. This will be a huge boon for people who are interested in keeping their phones longer than 2 years. The way things are now with most carriers in the U.S., you continue to pay the same cost for your plan, even once you have gone past the contract period and are no longer subsidizing the cost of the phone.

  10. I bought iPhone for the full price and I’m using T-Mobile pay as you go. I paid $650 for the phone and around $200 for minutes in last 12 months. That’s around $850 (well without tax). If I chose prepaid service with Verizon or AT&T, it would cost me $70/mo or $940 for 12 months. So I already have money back for my iPhone. Now I’m starting to save, because I don’t have any 2 year contract. It really is better to pay full price for the damn phone and choose operator and plan.

  11. Leo Marihart

    The game changer will be if T-Mobile will sell older devices like the iPhone 4S, and not just the 16 gig one either. If they can viably get carrier unlocked 32 & 64GB iPhones BACK into the pipeline at lower pricepoints then they’ve really got something here.

    • Kevin Fitchard

      Hi Leo, I’m pretty sure they will especially if they’re taking the sans-subsidy route. All of the other carriers sell models two generations old, and T-Mobile’s networks will support them all once it’s network reconfiguration is complete.

  12. Peter Payne

    Japan’s Softbank does this currently. I “bought” my iPhone 5 for around $800, but I get $25 back in by bill over the next 2 years bringing the price down to a reasonable level. I can quit any time but those subsidies stop coming hence I don’t want to quit.

  13. Jeff Kibuule

    The good thing is that people will finally become aware of the REAL cost of phones and start shopping based on that (and hopefully this means phone OEMs won’t be so arbitrarily locked into $50 price tiers).

  14. Michael W. Perry

    It’s a great move. T-Mobile is wise to compete on different terms than the three heavies. I’d suggest three other moves:

    * Unlock out-of-contract AT&T phones for free or a modest charge. I’ve got a 3GS needing just that.

    * Offer data at a modest, per-byte, prepay rate.

    * If their system permits, sell data bandwidth like airlines sell discounted seats that would otherwise fly empty. Have a data plan that only services users when those with more pricey plans aren’t accessing data. Many of us would care waiting 10-15 seconds if we could save money. And T-Mobile would see its data utilization rise.

  15. Michael P

    I have always had unlocked phones. I currently pay about $40 a month less than iphone users for the same plan through one of T-Mobile’s value plans. In fact outside of the USA it is very common to buy your device and not have a contract. So I pay $600 for a phone and it pays for itself in a year AND it retains more value so I can sell it for $3-400.

  16. 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.

    • Kevin Fitchard

      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.

      • 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.

    • 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 $.

  17. 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?

    • 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.

      • 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.

  18. Vadertime

    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.

  19. 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.

  20. 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).

    • Joseph Singer

      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.

      • nikolaus heger

        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.

  21. 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.

  22. Michael Santoroski

    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?

    • Kevin Fitchard

      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.

    • 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.

      • Matt Popke

        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.

      • John S. Wilson

        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.

      • 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?

      • 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.

      • nikolaus heger

        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.

      • Miranda Thomson

        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!!!

    • Phony Guy

      Those are the real prices. Go to, 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.

    • rick gregory

      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.

      • rick gregory


        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.