If something seems too good to be true, it probably is. That's an old saying, but it's one that most people keep in mind when they evaluate the latest offer from a cable company, internet service provider (ISP), or a wireless carrier. Even a company like T-Mobile (NASDAQ: TMUS), which built its rep on giving customers what they want, got greeted with skepticism earlier this year when it announced plans to drop all taxes and fees.
In that case, the deal turned out to be exactly what was promised. That's not really true, however, when you look at Sprint's (NYSE:S) offer to cut your phone bill in half made to Verizon and AT&T customers. That promotion, while a good deal, only applied to the service portion of the bill, meaning people who accept the offer won't actually see their wireless bill cut in half.
The same logic applies to many cable and ISP promotions where a short-term low price deal comes with a contract for future years that are more expensive. Pay television companies are notorious for offering prices that don't reflect the mandatory fees and surcharges customers have to pay.
Because of that, news that Virgin Mobile (which is operated in the United States by Sprint) would be offering a year of unlimited talk, text, and data to customers who sign up by July 31 for $1 certainly caused consumers to raise an eyebrow. It seems like a phenomenal deal, but is it too good to be true?
What is Virgin Mobile doing?
The company is giving away a year of unlimited service (with high-speed data capped at 23GB a month) for $1, plus applicable taxes. That deal is not made up, it's not a bait-and-switch offer, but it's also not the whole story.
To get a year of unlimited talk, text, and data for $1, the customer must purchase an Apple (NASDAQ: AAPL) iPhone and transfer his or her number to Virgin's Inner Circle plan, which costs $50 a month once the promotion ends. Virgin sells all currently offered iPhone models, including offering the entry-level iPhone SE for $279.99 for the 32GB version, which Apple sells for $399.
Is there a catch?
The only thing approaching a catch here is one that's easy to avoid. To get the deal you need to buy an iPhone. If you buy one from Virgin, it will be locked, which locks you into its service after the promotion expires.
To get around that, all you have to do is buy the phone directly from Apple. In that case, it will be unlocked, and you will be free to move to another provider at the end of the $1 promotion (or at any time, because Virgin does not lock people in with contracts).
Aside from that, the only catch is that you have to pay taxes, which vary by market, but Virgin has not hidden that fact. This is actually a good deal that sets a new bar in the wireless industry. It's a bold move by Sprint, which is banking on the idea that after a year customers won't leave. That may not be true, but that's something shareholders, not consumers, should worry about.