T-Mobile's iPhone Was a Classic Bait And Switch

After years of waiting, T-Mobile (NYSE: TMUS  ) finally got its hands on the iPhone earlier this year. The No. 4 carrier has made plenty of headlines this year with its "Un-carrier" push, trumpeting the end of subsidies on its network.

However, T-Mobile's marketing attracted some negative attention, too, since its campaign was considered "misleading" as consumers are still effectively tied into two-year commitments. Customers are just tied to installment plans instead of service contracts, but the net result is the same. When CEO John Legere confidently told consumers that if T-Mobile's service was terrible in any given month they were welcome to drop service and switch, what he didn't mention was that consumers would have to pay off the balance on their smartphones, which could easily be upwards of $500.

Furthermore, T-Mobile hasn't actually killed subsidies entirely, since there was a $69 discrepancy between its pricing and Apple's (NASDAQ: AAPL  ) -- a discrepancy that had to be coming from somewhere. This pricing was merely a promotional arrangement and not meant for this world for long. T-Mobile just pulled a classic bait and switch.

What ever happened to "dramatically different?"
One of T-Mobile's biggest headline advantages when it launched Apple's flagship in April was that it was offering the device for just $99 up front, in addition to two years of $20 monthly payments. That effectively undercut larger rivals who were charging $200 on contract.

T-Mobile billed the pricing structure as "incredible," with Legere saying the company was the only one to offer a "radically simple, affordable iPhone 5 experience." Late last year, Legere similarly teased that the iPhone experience would be "dramatically different" than on other carriers, while hinting at the $99 down payment. At the press event in March, Legere echoed, "I've been telling you that when the iPhone came to T-Mobile, that it would be different."

That's a lot of bragging about the $99 upfront price. T-Mobile isn't being so loud with its iPhone pricing now, which has just jumped to $150 upfront (same $20 monthly payments). The promotional period has ended and T-Mobile is now charging a $150 down payment on the newest iPhone, with the total cost rising to $630. That's still cheaper than most rivals, but the company just closed the gap by a lot. Unsurprisingly, it did not issue a press release advising consumers of the bump, but quietly updated prices on its website.

With the move, Sprint Nextel becomes the cheapest iPhone carrier, thanks in large part to a $100 promotion that the carrier is offering for any smartphone customers that switch and port their number over. That puts Sprint's iPhone 5 at the subsidized price point of $100. Sprint also offers unlimited data with no strings attached while T-Mobile's entry-level "unlimited" plan throttles data speeds after a certain threshold.

T-Mobile's initial pricing is little more than an attention grab. Legere is very consciously going for headlines, in part by lacing his presentations with expletives, growing his hair out, and dressing differently (contrast Legere's look this January with Legere circa 2002). Still, T-Mobile's iPhone just got a lot less different.

Apple has a history of cranking out revolutionary products... and then creatively destroying them with something better. Read about the future of Apple in the free report, "Apple Will Destroy Its Greatest Product." Can Apple really disrupt its own iPhones and iPads? Find out by clicking here.


Read/Post Comments (9) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 14, 2013, at 1:20 PM, MichalTod wrote:

    The pricing on TMobile isn't revolutionary... but it is more consumer friendly. After you've either paid for your phone upfront, or have paid off your installments, your monthly bill is substantially below that of the competition; the other cell phone companies still charge their customers the full rate even when the phone subsidy has been payed off. As smart phones mature, and there's less of a "need" to upgrade every two years, TMobile pricing will look more consumer friendly.

  • Report this Comment On May 14, 2013, at 1:54 PM, Jjkiam wrote:

    This article is completely unfair and biased. Tmobile never said it was giving away the Iphone. It's ter payment program is completely transparent and fair. It is true that you can end their service and go elsewhere with the phone as long as you pay off the balance. It's terms of service for voice, message and data are much less expensive than all other major carriers. Why not run articles on how deceptive the 2 year contracts are with so called subsidized phone from Verizon and AT&T ? They make back the cost of the phone in a few months and then keep raking in huge profits from the exorbitant fees they charge each month. Most customers also don't get their new phones every 2 years and wait an extra few months racking up even more profits for the carriers. This is where the true deceptive practices are found!

  • Report this Comment On May 14, 2013, at 2:54 PM, dapperone wrote:

    Over the course of 2 years, Virgin Mobile is by far the cheapest iPhone carrier. The two caveats are that the phone is full price, not subsidized, and as of now only the 4s and 4 are available, not the 5. In recent months the 4 and 4s models have actually been selling pretty well with all carriers, perhaps because 4g service is still unavailable in many areas of the country, so the major advantage of the iPhone 5 over older models can't yet be utilized.

  • Report this Comment On May 14, 2013, at 3:04 PM, jamesSeattle wrote:

    I agree that the article wasn't written with an objective perspective. There should be a way to report these kinds of articles to management at Fool.com.

    Simply put, T-Mobile doesn't charge for the phone after you've paid it off. If there is a service charge or something in there, great. The key for this deal for me is that your monthly charge ceases to include the monthly surcharge for the phone promo when your deal has run its course.

    Again, this article is garbage. Worse than amateurish, it's incorrect, misleading, invective, and unresearched.

  • Report this Comment On May 14, 2013, at 3:42 PM, curt333 wrote:

    I agree with the rest of the comments. "Again, this article is garbage. Worse than amateurish, it's incorrect, misleading, invective, and unresearched." Well said.

    The author clearly doesn't get it, so I'll explain it. Phones cost a lot and are subsidized by every carrier except T-Mobile. At T-Mobile, you can just pay for the whole phone upfront or pay it off over two years, but you'll have to pay for the full price of the phone one way or another. The good thing is you stop paying for the phone once you've paid for it in full. At every other major carrier, your monthly payments remain high even after the company has made up the money it lost by subsidizing your phone.

    Also, the author didn't take into consideration the quality of the network. T-Mobile's HSPA+ rivals AT&T / Verizon LTE speeds and is easily faster than Sprint LTE. T-Mobile LTE is easily faster than all other US carriers and will cover 100 million people by the end of June and 200 million people by the end of the year.

  • Report this Comment On May 14, 2013, at 5:31 PM, theswingkid wrote:

    This is a pretty simplistic article, and definitely appears to be skewed towards trying to get folks to sign up for Sprint and avoid TMobile. Not sure what the writers personal interest might be in that?

    For me, I've discovered there are TONS of options, using both existing phones and new phones. Curt3333 makes a great point - the only "Major 4" carrier that allows you to stop paying for your subsidized phone at some point is TMobile. That's a good thing. However, the service is still $70/mo for unlimited service.

    Virgin has an offering, but as indicated by dapperone, they have limited phone offerings, and limits on their minutes.

    2 things people should know that the author seemed to want to convey, but didn't at all - You should own your own phone, and find the best deal, whether with a pre-paid service or major carrier. Major carriers cost more and offer some extras like tethering and hot spots (for more money) that pre-paids don't. HOWEVER, you can get good service from pre-paids, usually on the TMobile network, for less, and pay separately for a hot spot if you need one.

    The best deal I've seen is through Solavei. $49/mo for unlimited data, text, and voice service, including 4g speeds. You can bring most phones over (might have to terminate and pay a fee to current carrier if you're under contract), or buy a phone through them, or ebay, or craigslist.

    And you can earn $ back by giving referrals, which is what I'm seeking to do now. I think Motley Fool would agree that earning a few extra bucks by buying low and holding on to something until it grows in value is right in line with what they recommend to all you Fools. NoLimitsNoContract(.com) for more info.

  • Report this Comment On May 14, 2013, at 9:38 PM, trac1964 wrote:

    Here's an idea--get a smart phone that's not an Apple. Don't mean to be agnostic but there some pretty remarkable other phones.

  • Report this Comment On May 15, 2013, at 1:48 AM, josh4ea wrote:

    This is the most idiotic article I've read in quite a while. The author is suggesting that this is a bait and switch from tmobile.

    Let me explain something. If you sign up with Sprint, ATT, or Verizon, you're paying $199 for the phone and then you have to pay your phone bill for 2 years. If you cancel then you have to pay about $300 for an ETF.

    If you go PREPAID with Virgin Mobile, Boost, etc, your iPhone will cost you $400-500 up front then you can choose to keep the service or not... but the PHONE is tied to the specific carrier.

    If you go with TMOBILE, you pay the down payment which is based off your credit score, then you pay monthly installments. You can CANCEL your "prepaid" phone service without penalty, but just because you cancel your service doesnt mean you get essentially a free phone.

    T-Mobile is simply giving you an affordable option and allowing you to get the new phone at an affordable no interest payment plan. Your payment plan for your phone... and your payments for your phone service are two different things.

    I view TMobile as a prepaid carrier. This carrier will let me get an iPhone 5 for $150 down unlike boost and virgin and cricket who will make me pay the entire cost up front. With Tmobile I then pay $20 a month to finance my prepaid phone with NO interest which is VERY affordable.

    There is no bait and switch. Thats the most uneducated thing I've ever heard.

    Just because you cancel your phone service without penalty doesn't mean you dont have to pay for the new phone you bought. LOL Come on fool.com. Sounds to me like you have a bunch of "fools" writing your articles at this point.

    Shameful.

  • Report this Comment On May 17, 2013, at 7:32 PM, KQXRPY wrote:

    This kind of inaccurate and biased writing is not worth my time to read and casts doubt on the value of the entire site's editing.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2429020, ~/Articles/ArticleHandler.aspx, 8/28/2014 9:26:04 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement