Is T-Mobile Running a Scam?

No. 4 domestic carrier T-Mobile is making a big push, rebranding itself as the "Un-Carrier" and deriding its larger rivals for their subsidizing ways. The company finally got its magenta hands on Apple's (NASDAQ: AAPL  ) iPhone, filling the biggest historical gap in its device portfolio.

CEO John Legere is full of fighting words. Not only was his presentation last month laced with expletives, but he also added:

These bold moves serve notice that T-Mobile is canceling its membership in the out-of-touch wireless club. This is an industry filled with ridiculously confusing contracts, limits on how much data you can use or when you can upgrade, and monthly bills that make little sense. As America's Un-Carrier, we are changing all of that and bringing common sense to wireless.

At the same time, T-Mobile's new plans simply replace confusion with even more possible confusion. Are T-Mobile's new initiatives a scam?

Still tied down
Washington State Attorney General Bob Ferguson thinks so. He calls T-Mobile's new campaign "deceptive" and wants to prevent Washingtonians from getting "duped." Ferguson doesn't believe that T-Mobile has been properly disclosing the full limitations of its new plans and warns that customers are still being effectively tethered to a two-year commitment in an underhanded way.

T-Mobile has been focusing on pitching its service plans as having "no annual contract," which is true. However, for consumers who are buying a phone on the new two-year installment plans (i.e., the vast majority of consumers), they're still effectively locked in during the term.

Not only has T-Mobile not killed smartphone subsidies entirely, which is evidenced by its iPhone pricing, but devices still being paid off through installments are locked to T-Mobile's network. The only way to have T-Mobile graciously unlock a device is to pay it off in full -- which can easily cost more than early termination fees that other carriers impose.

For example, Verizon (NYSE: VZ  ) Wireless charges a $350 early termination fee for smartphones (which declines $10 per month satisfied). Theoretically, a consumer could buy a subsidized iPhone for $200, immediately cancel service, and pay the fee for a total device cost of $550. That's less than the $650 retail price that Apple charges, as well as the $580 total required to pay off a T-Mobile iPhone. Interestingly enough, Verizon launched its own installment plans shortly after T-Mobile.

Assuming that most consumers want to avoid such a hefty upfront payment, a safe assumption, T-Mobile consumers are still locked in to a "two-year sentence" -- just of a different nature.

T-Mobile has cooperated with the state and agreed to "adequately disclose" the terms to customers, while offering a grace period that covers the past month allowing purchasers to back out.

On top of that, even though T-Mobile is billing its plans as offering "unlimited" data, the fine print shows that only 500 MB of "high-speed data" is included. After hitting that cap, data speeds will be throttled to embarrassingly slow 2G speeds. Want more or unlimited "high-speed data"? That'll cost extra, closing the pricing gap with the larger rivals.

Good luck what that brave new world, T-Mobile.

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Read/Post Comments (11) | Recommend This Article (10)

Comments from our Foolish Readers

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  • Report this Comment On April 27, 2013, at 8:36 PM, SwiperFox wrote:

    I've been with T-Mobile for 10 years or so. They are just like the others only cheaper. If their new plan is as you described, then it's not new at all. This is what I've been on for years.

    Still, it's nice to see someone take on the big kids. Maybe with a bit of prodding they'll deliver more of what they're promising.

  • Report this Comment On April 27, 2013, at 10:09 PM, HiWho wrote:

    I called them today regarding getting a new phone iPhone or HTC, ( no Samsung, I do not support a company founded by dictators and thrives on stealing). My question was, since I am on a two year contract, if after I get a phone for $99 then taxes and have to pay $20 a months hat happens to my contract. They said it would run its course too, so no break for me. To which I said I have been with you schmucks for ten years, is that not proof that I am your guy? Naa ! So I told them of sprint $100 to switch deal. The lady was smart, so she put me on hold and brought in customer retention. They offered to credit $100 to my account. So I went to T mobile store to get a phone. No HTC One in stock. There also was no iPhone on display, awhile bunch of "Samsings", which I was not interested. So I made the agent make a note on my account that I went to store and there was no phone to buy. As such it is their fault, I will keep the $100 credit till they have a phone. I also went online and screen captured the out of stock message they have. Why should I be on contract if they cannot provide the right phone?

  • Report this Comment On April 28, 2013, at 3:27 AM, 8210 wrote:

    If T-Mobile is getting in trouble when they are being more transparent with the pricing on the wireless services and phones they offer. Then Verizon, At&t, and Sprint need to be investigated, and clearly list how much say an iPhone 5 really cost you on a 2 year contract with them. If Verizon, At&t, and Sprint would follow T-Mobiles lead companies like Apple and Samsung would have to lower phone prices to compete. T-Mobile is only helping the consumers.

  • Report this Comment On April 28, 2013, at 9:12 AM, CDNGuru wrote:

    I've been saying this since they announced their new "no contracts". It's only good if you plan to NEVER buy a new phone. For some, that will work. I know some people you still use the Startac flip phone. But for most they want a new smart phone every 18 to 24 months.

    I confronted a tmobile salesman in the mall about this and he tried to convince me that in a short 24 months I'd be saving money. I had to laugh.

    No thanks, ill take AT&T where I can get a decent signal and lte speeds.

  • Report this Comment On April 28, 2013, at 1:18 PM, pk22901 wrote:

    You're way off base. T-Mobile is much cheaper than the other telecoms over two years.

    And incredibly cheaper within a family plan of 5 phones:

    $120 plus std taxes!

    Includes FREE hot spotting AND FREE wifi calls for times where the cell tower is too far away.

    Like I said no comparison. Someone didnt do their homework here.

    Unlimited talk, text and data. 1st 500mb on each device is fast and over 500mb is 2g speeds.

    You want more fast downloads? You can boost any named phone to 2GB fast for an extra $10 and to 5GB fast for another $10.

    ATT, Sprint, Verizon have no plan that comes CLOSE.

  • Report this Comment On April 28, 2013, at 1:41 PM, SeaSeven wrote:

    For reason I don't fully understand, people have an extraordinarily difficult time telling the difference between their phone and their phone service.

    If you look at it through the lens of those being two related but very separate products it isn't nearly as mind blowing of a shift as everyone is continuing to make it out to be.

    I think they are doing some good stuff to help educate consumers on this topic. Even with the near term complications, we're all going to be better off. T-Mobile customer or not.

  • Report this Comment On April 28, 2013, at 1:49 PM, CDNGuru wrote:

    I got 2 lines on AT&T, unlimited talk, txt, 4gb data, LTE speeds. $150/mo Tmobile with the phone (Galaxy S4) would be $152/mo (over 24 months). But what ever deal someone can swindle doesn't matter.

    You're wrong about the free hot spot. They killed that off with Android 4.0 pushes. Now they want $15/mo for it. Running an older phone? You sill have it. New phones, NOPE!

    I tested their LTE speed on an iPhone 5 in the store. 1.2Mbps. My friend on AT&T in the same spot got 15Mbps. My "4G" Tmobile phone got 1.5Mbps. So basically, I'd say their LTE is a joke.

    I've had Tmobile for 6 years. I'm in one of their biggest markets (Phoenix). I can't get a signal at my house or my office. Most of the time when I'm inside a large building (like the grocery store, mall, etc), I get 2 bars and 2G at best.

    So as long as Im not at home or working, I get OK service. Which is like what? 2 hours a day and the weekends??

    If Tmobile works for you, then great, you'll save some money in the long run. I've been "saving" for 6 years and I'm tired of crummy service. So that's why I'm switching to AT&T.

    Oh and in 2 years when you've paid off that iPhone (which cost you $579), will you be satisfied to use that phone for the next 2 years? Or will you opt to get an iPhone 6 or 6s or what ever?? So RIGHT back into another 24 month lease to own contract you go!!

  • Report this Comment On May 01, 2013, at 11:56 AM, jsem0n wrote:

    @writemc - I think you need to do your homework. The hotspot feature is available on any of the new data plans, including the included 500MB that comes initially with your plan. The only time it gets tricky, is when you want the truly unlimited 4G/LTE data - then only the first 500MB is included for hotspot use.

    Have fun paying min $50/month extra for the tethering feature on AT&T! :)

    Additionally, regarding what you're calling their "LTE" speed - most of their areas don't even have it and if it does, you likely just don't know how to read the app. LTE is not in my area (only HSPA+) and I constantly get 10-13Mbps down, which is AS fast and sometimes faster than my friend's LTE on AT&T:

    Additionally, the author of this article needs to do his/her research as well. If you look at the T-Mobile website, it is spelled out loud and clear that speeds are slowed after the threshold.

    "Includes up to 500 MB of high-speed data on T-Mobile's network for no extra charge. Smartphone Mobile HotSpot service included. Speeds slowed up to 2G speeds after 500 MB"

    The same with the 2.5GB plan...

    "Adds 2 GB to your included 500 MB of high-speed data. Smartphone Mobile HotSpot service included. Speeds slowed up to 2G speeds after 2.5 GB."

    Then there's unlimited...

    "Adds Unlimited Nationwide 4G data on T-Mobile's network. Includes up to 500 MB of Smartphone Mobile HotSpot (SMH) service."

    So, please tell me where the "fine print" is, that you mention. Where are they hiding this information, because it looks pretty clear to me.

    Here's what it looks like to me:

    Many of their now unsubsidized phones cost $99-149 each + $20/month for 24 months. The plan, including unlimited minutes, unlimited text + $20 more for unlimited data, including the phone, will cost $90/month - if you decide to keep the phone after two years, this goes down to $70/month.

    Wanna be on a family plan? Great! another $50/month, including unlimited everything and the cost of another device... After the two year period, it's only $100/month for both lines to have unlimited minutes, text and data...

    Keep in mind that there is also the 2.5GB @ 4G speeds option as well, dropping that price $10/line if you don't want the unlimited and the 500MB option, which comes included at no extra cost, dropping yet ANOTHER $10/line.

    I want to see any other major carrier compare to this in the near future.

  • Report this Comment On July 29, 2013, at 10:29 PM, redbull02 wrote:

    @ jsem0n

    Although this value plan "looks" very tentative it's not exactly as advertised (which is dubiously done). It's true that the value for the data service provided is fair but the whole "honest unsubsidized phone deal" it's totally false advertising. It's not exactly $100 - $200 down payment + $10 - $20/ month (depending on total phone cost). That's usually ONLY for your first purchase and ONLY IF you have good credit. If you are, say, a college student with very little credit record (not necessarily BAD record) you have to make a HUGE down payment (way more than $200 for latest gen. phones like GS4 or HTC One).

    And to add up to the list of purposefully misleading advertising: after you have paid off your 1st phone's total balance, they tell you that you have reached your credit limit per line ( such limit directly correlates with credit score) and that your next down payment for the next latest gen. phone will be WAY MORE than $200.

    Now, to me, it sounds like T-Mobile is caving in and is not being able to self-subsidize, with their own finances, the debts they are carrying from unpaid phones's balances of customers in value plans. That's the reason why they only offer low down payments only to those with good credit, and try to lure you in with those "$0 down payment" ads.

  • Report this Comment On August 26, 2013, at 3:44 PM, hsandlin10 wrote:

    Is t-mobile running a scam??? UMMM YES! It's pretty clear what they are doing. They want to sell people on the "no contract" jazz but then you pay FULL PRICE for the phone which is way more than an early termination fee. I got 2 phones under this new deal (BIG MISTAKE) not only do I owe $900 for two phones but 2 but I'm also still under contract- something that was not explained clearly to me when I got these new phones. So, if I want to get out of T-Mobile jail, it's going to cost me $1300!!! I've been with them for 8 years and I have never thought anything but good things. The last 2 years with them has been hell. I've had one issue after the next and they could care less about making things fair or making me happy. As soon as I can I am walking away from them and never looking back!!!!

  • Report this Comment On August 26, 2013, at 3:48 PM, hsandlin10 wrote:

    Hello! Can we say class action law suit?! It's only a matter of time with the way they are running things over there.. Not to mention the 2 phones I'm under contract for weren't even new phones! I got them at the same time and neither of them worked so they had to be replaced right away. You would think they would have been replaced with brand new phones but NOPE they were refurbished! So, WHY am I obligated to the contract that I signed when they didn't hold up their end of the deal with the new phones? It's all a joke!!!

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