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T-Mobile US Inc. Has Totally Revolutionized the Smartphone Market

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Which company has had the biggest impact on the U.S. smartphone market in the last year? Apple (NASDAQ: AAPL  ) ? Samsung (NASDAQOTH: SSNLF  ) ? Google? No -- without question, T-Mobile (NYSE: TMUS  ) .

The company's "Uncarrier" initiatives have set off a chain reaction within the industry, leading other carriers, notably major rivals AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) , to make major changes to their policies. The entire industry is in the midst of a revolution.

Getting more for less
For the telecom giants, profitability may be threatened, as competitive pressures have forced them into more aggressive pricing policies. Last week, for example, Verizon doubled many of its subscribers' monthly data caps for no additional charge.

AT&T has been even more aggressive: Earlier this month it rolled out a new family plan that it touted as being $100 less than a similar family plan from Verizon. AT&T is also offering its subscribers $100 credits for each new line they add, and (though it has since ended the promotion) was offering T-Mobile's customers up to $450 to switch.

T-Mobile, of course, was instrumental in leading the charge, but has intensified its efforts in recent months, particularly with its plan to pay off subscribers' early termination fees if they made the switch.

The end of subsidies
The overarching theme behind T-Mobile's new policies, and one that's been adopted by its competitors, is a move away from smartphone subsidies. T-Mobile dropped them altogether last year, requiring its subscribers to bring over an old handset, purchase a new one outright, or pay for it in monthly installments. AT&T and Verizon still offer subsidies, but they're clearly in the process of getting rid of them.

That new AT&T family plan, for example, does not include subsidies of any kind -- like T-Mobile, any families that elect AT&T's new plan must pay for their own handsets. Likewise, Verizon's new "More Everything" plans that gave existing subscribers more data also made its Edge program more attractive.

Edge is Verizon's alternative to T-Mobile's Jump plan, which lets Verizon subscribers get a new handset more often as long as they're willing to forgo subsidies. Last week, Verizon announced that it was reducing the cost of these plans by $10 or $20 for new customers.

Smartphone-makers like Apple and Samsung have long depended on subsidies to sell their more expensive handsets. Although Apple's iPhone 5S and Samsung's Galaxy S4 cost upwards of $600, most U.S. subscribers pay only a fraction of that cost -- their carriers pay the difference.

But without subsidies that's no longer the case, and subscribers can reduce their monthly bill significantly by choosing a cheaper handset. Intuitively, it would seem that subscribers who elect these plans would pick a less-expensive phone, as they could save themselves a great deal of money over time.

Yet that doesn't appear to be the case -- according to Consumer Intelligence Research Partners, customers who choose these plans actually tend to select more expensive handsets: They favor Apple's iPhone 5s over the 5c, and Samsung's Galaxy S4 over its less expensive alternatives.

Still, the rise of subsidy-free plans could result in longer upgrade cycles, as subscribers on these plans see their monthly bills drop once their handsets are paid off -- a luxury that subsidized handset owners didn't enjoy. Or it could result in more upgrades, as consumers on these plans can buy new handsets more often (assuming they're willing to pay). With subsidized plans still representing the majority of smartphone purchases, this is one trend that's still in its early stages, but could have major effects on the handset-makers over time.

Remaking the industry
At this point, it's overwhelmingly clear that T-Mobile has changed the wireless industry forever, giving consumers more choices and reforming the ways rival carriers do business.  While that's great for consumers, that might not be the case for investors -- with competition increasing, the profitability of companies like Verizon and AT&T could be challenged. Even the business of handset makers like Apple and Samsung is thrown into doubt by the loss of subsidies.

The Motley Fool's Sean Williams didn't include T-Mobile's John Legere is his list of the five best CEOs of 2013. In retrospect, I think that was clearly a mistake. Under Legere, T-Mobile has gone from a bottom of the barrel, second-tier provider to the prime mover within the industry.

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Read/Post Comments (11) | Recommend This Article (8)

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 February 16, 2014, at 6:02 PM, bsimpsen wrote:

    "Smartphone-makers like Apple and Samsung have long depended on subsidies to sell their more expensive handsets. Although Apple's iPhone 5S and Samsung's Galaxy S4 cost upwards of $600, most U.S. subscribers pay only a fraction of that cost -- their carriers pay the difference."

    What kind of nonsense is this? Subcribers pay all the costs. You must be the sort that thinks the government should pay for things so you don't have to.

  • Report this Comment On February 16, 2014, at 6:54 PM, Gridlocked wrote:

    Like a shooting star T-Mobile will burn up.

  • Report this Comment On February 16, 2014, at 7:11 PM, edwin320 wrote:

    I think you still end up paying for the phone anyways..the charges for everything is higher..with this new set up..its about the the whole phone yet the bill will be alot cheaper and it is without contract..they just shifted stuff around so the consumer wont be in contract..i think..

  • Report this Comment On February 16, 2014, at 8:42 PM, Bikenight69 wrote:

    Not sure where bsimpsen got his information, but U.S. subscribers aren't getting the phones at a fraction of the cost. The discounted intial fee for the phone is just the beginning. The wireless carriers were charging customers for the phones for the remainder of the contract. In most cases the subscribers pay more than the original cost of the phone. I can't say that I'm a fan of T-mobile, but I do applaud them for their aggressive business tactics. In the end I feel it will benefit the consumer in the form of lower monthly cost for wireless service.

  • Report this Comment On February 16, 2014, at 9:45 PM, sightwire wrote:

    Not it's time for handset makers to provide their phone unlocked so consumers can switch to any carrier and take our phone with us.

  • Report this Comment On February 17, 2014, at 12:02 AM, CrazyDocAl wrote:

    Forgetting all the inaccuracies about smart phones and who pays what the fact is that T Mobile is doing probably the worst thing. Verizon is number one because they have built the biggest network. Their LTE network is second to none.

    Tmob is taking their money and giving it to AT&T to buy customers. That's a loosing prospect. Once customers realize that they are extremely limited to where their phones will work reliably and where they can get fast data access they will leave.

    Since the other 3 carriers are following Tmob's lead we can expect that the loss of income by the carriers is not going to hurt CEO pay. It's going to slow the increase of their networks. That's not a win for users. It also puts Verizon in a good place as they are the least in the need for upgrades.

  • Report this Comment On February 17, 2014, at 12:04 AM, Elshinare wrote:

    Ok I'm confused, prepaid carriers like Cricket (now owned by AT&T), Boost, MetroPCS have been doing this for a long time, but T-Mobile gets the credit?

  • Report this Comment On February 17, 2014, at 12:29 AM, Collett224 wrote:

    Unfortunately you need a network to run wireless on. VZ and AT&T have each been spending roughly 8 to10X what T Mobile has been spending on their network for the last five years or so, to build their networks. You need cash to build those networks. VZ and AT&T generate huge amounts of cash to continue building those networks. Sprint has their new owner willing to spend huge sums on their network. T-Mobile"s German owners want to dump the company. Everything they are doing is to make their company attractive to buy, not to build a network that will be competitive with the likes of VZ and AT&T in the long term.

    What will start happening very shortly is that all the new customers T Mobile is getting will end up with lousy service because the wireless network they are tied to are dramatically less capable that what those same customers were used to. Think more dropped calls and much slower data if you switch to T-Mobile.

  • Report this Comment On February 17, 2014, at 2:05 AM, HDizz wrote:

    Can The Motley Fool please crawl out of John Legere's ass? All these hero worship articles are getting so old. Legere is simply copying the European format. It's not revolutionary, it was inevitable.

  • Report this Comment On February 17, 2014, at 1:00 PM, legacys7 wrote:

    Ehsinare wrote: "Ok I'm confused, prepaid carriers like Cricket (now owned by AT&T), Boost, MetroPCS have been doing this for a long time, but T-Mobile gets the credit?"

    You beat me to it. I as going to say, it's amazing at how T-Mobile is getting both credit and praise for something that they've adopted after the merge with Metro PCS. Metro is my phone carrier, but my phone and lines goes through T-Mobile.

    Metro was the first to do this, but they just didn't have the power like T-Mobile and the others. After the merge, it put Metro customers in a better position as well as T-Mobile. We customers got better coverage. T-Mobile got the LTE technology. Metro was the first to have the LTE technology. Before Sprint etc.

  • Report this Comment On February 18, 2014, at 1:41 AM, zippero wrote:

    Mattera is the leader of the welfare recipients who want $80 so-called smartphones with 250MB a month data plans and no apps.

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Sam Mattera

Sam has a love of all things finance. He writes about tech stocks and consumer goods.

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