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.
Fool contributor Evan Niu, CFA, owns shares of Apple and Verizon Communications. The Motley Fool recommends and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.